Mortgage Rates Sees a Correction Today

Mortgage rates unfortunately had a correction today as we had feared after last week’s spike in rates.  That leaves the most prevalently quoted conforming 30yr rate for top-tier scenarios at 4.5%, but we are still close to 4.375%.

The stock market did its usual swoon again today, opening strong with the DJIA up over 100 points before backing off in the afternoon.  Going into the weekend with Russia’s troops apparently massing at the Ukraine border kept both stocks and bonds from any major moves.  The 10yr note, as we have mentioned many times has strong resistance at 2.70%; yesterday at 2.68% was a warning that the note was entering into an area that has been difficult to sustain.  Markets are still edgy over the geo-political situation but as noted, as long as bullets are not flying traders are not in any panicky mode.

Having strung together so many days in a row without moving higher, today's correction was increasingly likely.  The thing about those sorts of corrections, however, is that they do not necessarily connote a full-on move in the other direction.  To be clear, it is risky to plan on such things happening, but next week has a good amount of economic data and the extremely important Employment Situation report on Friday.  On Monday, the end of the first quarter, sometimes generates unusual trading in the stock markets. Without a geo-political escalation next week, interest rates will have an uphill climb to push interest rates lower from present levels.  The more likely scenario is that Mortgage Backed Securities (MBS) and treasury prices will decline a little.  The technicals are still in a neutral trading range, the 10yr note is comfortable between 2.80% and 2.70%. This week was a good week in terms of trading but overall there was very little change in MBS prices, up 20 bps from last Friday; the 10yr yield down 3 bps to 2.72%.

In summary, the Friday sell off occurred.  Mortgage bonds headed into negative territory this afternoon – but bonds did remain above key support which is a good thing. If you did not lock this morning I would float over the weekend. A lot can happen in Ukraine between now and then.