Mortgage Rundown: March 12th 2020 – Unprecedented

Hello everyone. Welcome back to the Mortgage Rundown. Today we are going to talk about what’s
happening in the capital markets and interest rates around the world. No doubt by now you’ve seen the volatility
in both the stock and bond markets. Treasury and mortgage rates saw all-time lows
and stock price volatility hit all-time highs. Take for example the 30 year Treasury bond,
which for all practical purposes is the best gauge of the long term outlook for the US
economy. Longer term outlooks generally don’t change
as frequently or with as much volatility as shorter-term outlooks. However in the past week the 30yr Treasury
bond has experienced the greatest amount of volatility in its entire history, going all
the back to when it was first issued in 1970. Volatility in Treasury bonds centered around
the threat of a recession related to the coronavirus has created more single day interest volatility
than the Great Recession, the terrorist attacks on September 11th, Black Monday of 1987 and
other major events in history. In fact March 9th of this week is now known
as Black Monday 2020, with the stock market halting trading after 4 minutes, the Dow Jones
Average dropping over 2,000 points on the day, the 10yr falling below 0.5% and gold
rising over $1,700 an ounce. This has created havoc all over the market
and the fallout from all of these recent events has been a rapid drop in mortgage rates. This rapid drop unfortunately creates a lot
of issues with mortgage-backed-securities trading all over the map. Irrational pricing occurs which ultimately
can get very confusing for loan officers and borrowers. These types of dislocations occur for a few
months before realigning to a different market as expectations sync up with reality. Expect continued volatility over the next
several weeks as information and the impact of the coronavirus works its way through the
news and the trading levels of bonds and stocks. After the market calms down, hopefully the
dislocations in the mortgage-backed-securities market will normalize and as lenders clear
out their pipelines, mortgage rates will align closer with Treasury rates. That’s it everyone from the capital markets
desk this week. Thank you all for watching and have a great

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