When rates go up, bond prices go down, and vice versa. People who own bonds may not care if the price is going down since they don’t have to sell them , but many institutions do, including banks who own them. And in this environment, where people are second-guessing banks and their investments, few care about the economic data that is released by the government and its impact on mortgage rates. But Sovereign Lending Group and our loan officers.
The rapid rise of interest rates that began seven months ago claimed its first victims over the last week, overshadowing much anticipated retail and inflation data. The collapse of three regional banks (Signature, Silicon Valley, and Silvergate) created uncertainty around the Federal Open Market Committee’s meeting this with volatile swings in expectations and rate movement as news was released. By the end of the week, markets still expect to continue its battle against inflation with a final 25 basis point rate hike with the potential of easing to happen in the second part of this year.
But for the moment, Sovereign Lending Group (SLG) wants our clients to know that the U.S. economy still remains in positive territory as control group retail sales rose 0.5 percent in February and manufacturing production remained positive. Housing starts spike 9.8 percent to a 1.450 million-unit annual pace in February due to a rise in multifamily starts. However, single-family starts rose for the first time in 12 months as buyers that were on the sidelines re-entered the market. Combined with an increase in purchase mortgage applications through March 10, the activity is signaling that housing activity may be starting to stabilize, good news for SLG’s clients and potential clients.
The headliner event of this week will be a crucial two-day meeting of the Federal Reserve’s policy-making committee with some investors on a razor’s edge over the potential for an unexpectedly hawkish tilt. At the time of publication, futures trading implies a 74.5% probability of a 25-basis point rate hike by the Fed and a 25.5% chance of no hike at all. The odds for a 50-point hike are now effectively off the table after being a betting favorite just a few weeks ago.
Opinion is divided on the tactics the central bank should take given the recent events. Bank of America forecasts the target range will be raised appropriately by the Fed by 25 points to 4.75% to 5.00% with the short-term loans offered through the Bank Term Funding Program seen as an effective backstop to more banking fallout. But there are some that believe that the FOMC should sit on their hands, primarily due to the risk of recession. Sovereign’s management will be watching for any impact on our clients. Stay tuned!