Mortgage Rates Fell To Their Lowest Levels Since February

Mortgage rates fell to their lowest levels since the beginning of February.  There is no rhyme or reason that has justified this move except that everyone right now is trying to position themselves in the wake of tomorrow’s Employment Report.   It was one year ago this month when the surprise report started the steep climb out of the low 3 percent range to where we are today.  The underlying reasons to all this is complex, and I am sure there are those smarter than I that feels where they stand will be the right move.  With that said, the most prevalently quoted conforming 30yr fixed rate for best-case scenarios moved down to 4.375% and even pushed the door open at 4.25%.

A number of economists are saying it is all due to Russia.  This is providing fantastic support for Mortgage Backed Securities (MBS) and other U.S. bonds as things continue to crumble in the Ukraine.  There might not be any real military escalation at this time but something more subtle and powerful is a foot.  We had a mixed bag of economic data this morning and as a result MBS are moving sideways. The most important economic report of the day is the 10EST release of the ISM Manufacturing report. Although, even it is much stronger than expected it is difficult to see a big sell off...the support levels is just too strong due to Russia.

So now we wait for tomorrow!  Jobs, Jobs, Jobs!  Tomorrow's Non-Farm Payroll report will get the most attention of the day.  The market is expecting some momentum here with a reading just above 200K.  Regardless of the outcome, this will not impact the Fed's path to taper which is why we are watching it so closely at the end of 2013. A number above 210K (and or major revisions to last month) will pressure MBS.  But your downside is very limited with the massive support from Russian fear.  Today was strong with the 10yr dropping to its last level of resistance at 2.60% (low today 2.59%) and 30yr MBS prices within 9 basis points from its resistance at 105.17.  Will the rate market succumb to the resistance levels or will the 10yr break through and rates decline further?

In summary, rates have been in a sideways range since the beginning of February. With a nice improvement this week bringing us back down to the floor of that range, and a high risk event tomorrow in the monthly Jobs Report, the prudent move now is to protect this improvement and lock in these rates. Nothing out there suggests we will break even lower and recent history seems to imply a likely bounce higher at some point soon.