Bonds love uncertainty and bad news. As a result, rates improve when not-so-good news emerges.
That was the story this past week, as China has reported a new deadly coronavirus has started to spread in their country. The virus, which spreads through human contact, has taken several lives and has affected hundreds.
A known case in the U.S., several Chinese cities quarantined, and uncertainty over what happens next has the financial markets on edge.
In response to the uncertainty, many investors around the globe are placing their money into the relatively safe-haven of the U.S. dollar and U.S. denominated assets like bonds — which has helped home loan rates improve to the best levels in three years.
If the virus gets contained quickly and doesn’t spread further, the modest improvement in rates this week could reverse very quickly.
At the same time, should the virus story get worse and become even more uncertain, we should expect bond prices to climb even higher, helping home loan rates even further.
Bottom line: with home loan rates now touching the best levels in three years, anyone considering refinancing or buying a home would be wise to take advantage of what may be a brief improvement in rates fueled by the coronavirus uncertainty.
Forecast for the Week
There is a lot to follow in this upcoming week. We will see a slew of economic data that will cover a big chunk of the U.S. economic landscape such as inflation numbers, housing, and consumer attitudes, to name a few.
In addition, the heart of earnings season will take place with recent numbers streaming to the positive side. Of the S&P 500 companies that have reported thus far, 70% have beaten expectations.
And if that weren’t enough, we also have the two-day Fed meeting beginning on Tuesday and ending Wednesday at 2:00 p.m. ET with the release of the Monetary Policy Statement. Fed Chair Powell will hold a press conference following the statement release at 2:30 p.m. ET. There is a zero percent chance of a change to the short-term Fed Funds Rate, but the meeting always carries some headline risk.
Investors will also keep a close eye on the coronavirus headlines.
Reports to watch:
- Housing data will come from New Home Saleson Monday, S&P Case-Shiller Home Price Index on Tuesday, and Pending Home Sales on Wednesday.
- The closely watched Durable Orders report will be released on Tuesday.
- Consumer Confidence will be delivered on Tuesday followed by Consumer Sentiment on Friday.
- The first reading on Q4 2019 Gross Domestic Product will be announced on Thursday along with Weekly Initial Jobless Claims.
- Inflation data will come from Friday’s Core PCE and the Employment Cost Index with Personal Spending and Incomes accompanying the PCE data.