It's a short, but heavy, week for mortgage markets. Investors are returning to the fray after a few lighter-than-normal weeks and their return should bring some stability to mortgage rates. Last week, mortgage bond prices rose which, in turn, moved mortgage rates down.
The main reason for last week's rate improvement was the assassination of Pakistan's former Prime Minister.
Unlike economic data that can be forecasted or extrapolated, a political assassination happens instantly and it creates uncertainty about the future political and economic policies of a nation.
Consider the following facts about Pakistan:
- It has nuclear capabilities
- It is located on or near several important oil pipelines
- It is in a state of political unrest
Instability in Pakistan threatens the economies of many nations. After the assassination, investors' risk models changed in an instant and many sought stability.
As the world's largest marketplace, the United States is where they find it. This is sometimes called "safe haven buying" or a "flight-to-quality" in the newspapers and on TV.
As the investors move their money to the U.S. markets, demand for mortgage bonds increases and this pushes mortgage rates down -- just like we saw last week.
This week, mortgage markets will be digesting the minutes from the Federal Open Market Committee's last meeting and the December jobs report. Investors are expecting weakness in the job report so if they get it, mortgage rates won't do much.
If the report comes in strong, though, expect mortgage rates to rise. More people working means more income to pump back into the economy and that makes markets fearful of inflation.
When evidence of inflation appears, mortgage rates tend to rise.
(Image courtesy: Encyclopaedia Brittanica)
