By Seth Dolce – Citizens Bank
U.S. Treasury yields were volatile over the course of the week, as the ongoing trade dispute between the U.S. and China continued to generate uncertainty among investors. Rates were up early in the week, rallied briefly mid-week and then pared back their earlier gains on Thursday and Friday. The Dow closed flat after a strong week with traders taking their profits and checking out early for the holiday weekend.
The Euro continued to weaken, roiling markets and foreshadowing lean days ahead for Europe. The Euro is now down 6% over the past year; a seismic drop for currency. Brexit fears are anchoring this sentiment, and overall, risk warnings are on the rise. Compounding matters is the softening of the Yuan, which reached new lows.
Overall, Mortgage rates increased for the first time since July 12th. As a consequence mortgage applications to refinance dropped 8% with purchase apps falling 4%.
Some folks believe rates have more room to drop and we’re one tweet away from a sub 1.40 10-Year. Others believe that any type of reconciliation between Washington and Beijing could trigger a Treasury Sell off and force rates to rocket upwards. If a deal is struck, it would move investors out of treasuries and back to equities; causing a sharp spike in yields on the long end of the curve and pushing mortgage rates materially higher.
With this dichotomy of outlooks we’re advising our clients to ensure their rate is in a position to be locked. This is achieved by initiating the refinance process but floating (not locking) the rate. Then, if they see a rate that is compelling or a deal is struck between the U.S. and China and we see a sudden upward swing in rates, we can lock in the rate immediately, ensuring you don’t lose out on this exceptional refinance opportunity.