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Good News for Global Bonds; Trade Tensions Increase

Overview: Bond-friendly news from the European Central Bank meeting and increased concerns about a trade war were favorable for mortgage rates over the past week. Recent economic data caused little reaction. As a result, mortgage rates ended the week lower.


On Thursday, the European Central Bank (ECB) announced that it will begin to scale back its bond purchases in September and will finish them in December, which was expected. More notably, officials said that the first rate hike will not occur until at least September 2019. Since this time frame was later than expected, this was viewed as favorable news for global bond yields, including U.S. mortgage rates.

This past winter, retail sales unexpectedly turned negative for three straight months, leading to questions about the strength of consumer spending. However, Thursday's release of the retail sales numbers for May revealed a third straight month of solid gains, easing investor concerns about the health of the economy.

On Monday, President Trump threatened to impose an additional $200 billion in tariffs on Chinese goods. Investors viewed this as a major escalation in the trade tensions between the U.S. and China. A trade war between the two countries would slow global economic growth, which in turn would reduce the outlook for future inflation. As a result, mortgage rates moved lower. Week Ahead

Looking ahead, the New Home Sales report will be released on June 25. The Durable Goods report, an important indicator of economic activity, and the Pending Home Sales report will come out on June 27. The core Personal Consumption Expenditures (PCE) Price Index, the inflation indicator favored by the Fed, will be released on June 29. In addition, Treasury auctions on June 27 and June 28 could influence mortgage rates.

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