Another government shutdown is slated to begin at 12:01 a.m. on Wednesday unless lawmakers can find a resolution.
This isn’t the first time we’ve faced a shutdown lately, and surely won’t be the last.
It seems to be becoming more and more common these days, though lately they’ve been able to avoid them at the eleventh hour.
In fact, we haven’t had one since 2019, during Trump’s first term, though the threat of a shutdown seems to happen annually nowadays.
This time might be different, but either way we’ll find out soon.
One implication could be the release of key government data, which among other things, affects the direction of mortgage rates.
Mortgage Rates Tend to Fall During Government Shutdowns
First off, government shutdowns are generally “bullish” for mortgage rates.
That is to say that when one occurs, mortgage rates move lower, all else equal.
The short explanation why is the old flight to safety to bonds when uncertainty rises.
When investors seek the safety of government bonds, their associated yields drop and that trickles down to things like 30-year fixed mortgage rates.
And if you look at the data from the past several government shutdowns, we can see that rates came down.
Granted, the move lower wasn’t dramatic. And the length of the shutdowns has been highly variable.
It’s also difficult to ascertain when any flight to safety related to a shutdown actually begins.
But the main takeaway is it’s a positive for mortgage rates.
In terms of how much they improve, it’s not massive, but it tends to be anywhere from .125% to .25% of a point.
For example, if the 30-year fixed were priced at 6.375%, it could potentially fall to 6.25% or even 6.125%.
But Would More Weak Jobs Data Benefit Mortgage Rates Even More?
The odd thing right now though is mortgage rates could actually benefit more from the release of additional economic data.
And we have, arguably, the most important piece of data slated for release this Friday, the monthly jobs report.
But if the government shuts down, it won’t be released. This is referred to as “flying blind” as bond traders (and the Fed) won’t be privy to this data.
While mortgage rates could still drift lower on the uncertainty, there’s an argument they’d be even lower with more weak jobs data.
If you recall, the past two jobs report from the U.S. Bureau of Labor Statistics (BLS) were absolutely horrendous.
Far fewer jobs were created than expected and there were massive downward revisions, a sign that the economy is beginning to crack.
That has been the reason why mortgage rates have come down so much over the past few months, not because the Fed cut again.
In fact, the Fed only cut again because of the really weak labor data.
Now some goodish news. Even in the event of a government shutdown, we’ll still get the monthly jobs report from ADP, which is a private company.
That comes out this Wednesday and while it doesn’t include government payrolls, it will at least give as an idea of where things are headed.
Speaking of federal employees, more than 100,000 are expected to formally quit today as part of the Trump admin’s deferred resignation program.
So a bit of a wrinkle there that won’t show up in the data for some time.
But if you’re watching mortgage rates this week, keep an eye on the ADP jobs report coming out tomorrow morning.
Read on: How to track mortgage rates.
(photo: Michael Coghlan)
