Mortgage Rates Holding Steady Ahead of Yellen's Testimoney Tomorrow

Mortgage Rates did not move as much as the Mortgage Backed Securities (MBS) improved to give the options for better rates and/or discounts to the customer.  This follows what we saw from Friday’s surprising jobs report.  The improvement has been very slight, not like the gangbusters we have seen in the past where it shifted dramatically one way or another.  The most prevalently quoted conforming 30yr fixed rate for the very best borrower scenarios remains at 4.375% with the range of .125% in either direction to close to call.

I keep on mentioning that the lack of movement to lower rates is probably based on what we saw in improvements in the last 75 days.  This drop, even before the jobs report, may have run its course. No news and Yellen’s testimony tomorrow at the House Financial Services Committee are keeping things still.   

If markets are waiting for more guidance before deciding on their next move, it could come in the form of Janet Yellen's first congressional testimony this week starting tomorrow and Thursday. This could be a focal point for market participants seeking to get inside the Fed's head.  There are no big surprises expected as far as changes in Fed policy being broadcast but will likely carry forward Bernake’s policies at least at this meeting.  Because this is the first instance with a new Fed chair, markets may be a bit hesitant to move much in either direction before they hear from her.  Expect her to say that the economy and labor markets are improving but not as quickly as the Fed would like to see. She will not have any specific comments that will signal another taper or not before the March FOMC meeting; saying in effect that it is still data dependent. On the weak job growth in December and January, look for her to lean on the weather as a deterrent to hiring.  We will be interested in how she handles the decline in the unemployment rate.  A lot of what markets usually take out of the testimony comes from the Q&A portion, we doubt she will be drilled much as it is her first testimony as chairwoman; nevertheless traders will focus on everything she says and attempt to decipher Fedspeak.  As we understand it her prepared testimony will be released at 8:30 tomorrow, normally it is released just prior to reading it to the committee at 10:00.

In summary, we seem to be at or near the bottom of a range and when comparing the available room for short term improvement relative to the potential for worsening.... the risk versus reward analysis currently shows the risk is too high.  If you are inclined to float, I would do so cautiously, and without the expectation of too much further improvement.