Mortgage Rates At Highest Levels in 30 Days - 10yr Has More Impact

Mortgage rates continued higher today after it became clear that markets were discounting weak economic data due to weather. Unfortunately for all of us, we are now seeing the highest rates in the last 30 days.  We are now back to a solid 4.5% as the most prevalently quoted 30yr fixed rate, but not in such a dramatic fashion as to preclude 4.375% for the very best borrower scenarios.

The bond and mortgage markets are not moving in either direction. All financial markets, no matter the opinions floated by us or anyone else, are flying blind presently. We do not know the real status of the economy.  What we know is that we do not know - that is the only thing!   In the meantime investors and traders are confirming that we do not know as markets are chopping back and forth with no solid direction at the moment. 

The theme of confusion persists for bond markets which also aligns itself with the Mortgage Backed Securities (MBS) Investors are struggling to find solid cues for movement in this environment where the notion of "bad weather" can discount negative economic data.  With the type of economic data we have seen so far in January and February, mortgage rates should be pushing slightly lower.  However, the bigger issue is that the economic data itself is citing the uncommonly cold/snowy weather as justification for the slowdown. No one knows for sure how big an impact it is having, but until we have a weather-free baseline against which to compare it, confusion will continue.

Right now, a shift towards following the 10 yr note has more impact than the MBS.  The 10yr is comfortable right where it is currently (2.68%). Until the 10yr either moves above 2.80% or below 2.68%  - a thin 12 bp range, the best we can say is it is just trader noise with no conviction that lasts more than a few hours.   When the 10yr breaks out it is likely to move quickly in the direction of the break, taking MBS’s along with it.

In summary, weaker reports would usually help, but not in this market.  Because it is winter and the weather has been brutal, it seems that no report will be the basis for true economic readings on the health of the economy until spring.  That is until the reports cannot blame the weather and the reality of a sick economy is believed.  If you are closing in the next 30 days, my recommendation is to lock and not look back.