Weekly Mortgage Overview: 9/16/2013

It’s a new week and welcome to better pricing!

Former Treasury Secretary Lawrence Summers was widely believed to be the next Federal Reserve Chair nominee.  But after the markets closed on Friday, he announced his withdrawal from consideration.  This means that Janet Yellen is considered the new front-runner.

MBS have rallied over +70BPS in early trading Monday morning as a result.  Why?  Because Summers was considered more “hawkish” than Yellen and the market had priced in him curbing Fed purchases sooner than Yellen would.

While we have a big week for economic data, this week is all bout the Fed…all the time.  Not only do we have the soap opera of who will be the next Fed Chair, we have a very important Federal Open Market Committee (FOMC) meeting.  Normally we get the Fed announcement at 2:00 on Wed.  But this time we will get the Fed announcement at 12:30 and then a Q&A press conference at 2:00.  This could prove to be a very, very volatile day.

Wednesday is key because the markets will learn if the FOMC is going to start to “taper” their monthly Treasury and MBS purchases.   If they do not taper, then MBS could rally further causing lower mortgage rates.  If they do taper (even in a very small amount) it will signal to the markets that their bond purchase program is at the early stages of winding down and future purchases will wane…this will cause higher mortgage rates.