Rates Face Big Volatility Risk Next Week
Mortgage rates enjoyed a pleasantly flat week despite some volatility in the underlying bond market. The day-to-day changes in Treasuries and Mortgage-Backed-Securities (MBS) were noticeable, but they all took place inside the range of values seen last Wednesday on Fed day. In other words, the bond market (which dictates rates) digested the Fed's message and is now waiting for the next shoe to drop. When it does, we're highly likely to see the current range give way to the next bout of strong momentum.
The shoe in question is next week's economic data. After all, the Fed's message last week was that it was prepared to cut rates if the economic data justified it. Next week contains several of the most important economic reports in the monthly rotation, including the all-important jobs report. The last jobs number was quite a bit weaker than expected. This will be the market's (and the Fed's) chance to find out if that was an anomaly or the beginning of a shift.
In general, stronger than expected economic data would make a case for a bounce toward higher rates. Disappointing data would have the opposite effect. There's no telling exactly how far either move could run. It would depend, to some extent, on just how far the data is from expectations. Either way, be prepared for a bigger move.