Mortgage Rates Improved Despite Volatility in Market
Mortgage rates improved despite volatility in markets during the day. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios remains at 4.25%.
Stocks rolled over again today on weaker retail sales data - of course with the stock market down interest rate markets rallied. Retailers from Staples Inc. to Urban Outfitters Inc. slumped on worse-than-estimated earnings and small-cap companies retreated. Investors are increasingly moving away from risk - at least that is what the headlines say, but I am not so sure that is the case. Yes, the stock market is on the edge of a serious sell-off but investors are turning to corporate debt as an alternative. What were considered junk bonds are now looking less like junk and more like a good return. The idea is that even if the value of stocks declines businesses will be able to pay their debts, and the rates on most of the debt are over twice as high as treasuries - and not many want Mortgage Backed Securities (MBS) with the housing sector looking weak. We will know more about housing when we get existing and new home sales on Thursday and Friday.
This recent phenomenon of rates staying near the lows with relative stability is uncommon. Normally, when we have a quick move to recent highs or recent lows, rates will continue in the same direction or reverse course with a bigger correction. This time around, however, they continue to bide their time without giving any clear signals about their next move.
Still no economic data this week as there is anything tomorrow. We still have Thursday April existing home sales, weekly jobless claims and leading economic indicators.
This morning we thought the markets would be quiet, but that did not happen, as the bond and mortgage markets had a great day while the stock market took it on the chin again on soft earnings and the increasing realization that the US and global economies are not growing as investors had bet they would last year.
The 10yr declined to 2.51% but is still not getting enough buying to push it below last November’s low (2.48%). Since the beginning of this year the rate markets have traded better each time there has been a pause in the equity markets. Do not buy into the view that the bond and stock markets are not joined at the hip now as some are espousing. As stock indexes fall, so too will interest rates. The 10yr is ripe to move rapidly to 2.25% if the equity markets don’t hold here. Tomorrow’s FOMC minutes, always with some nuggets, may drive rates lower - but not likely to break out to new low rates until April existing and new home sales are reported Thursday and Friday. The estimates are setting the bar high. Let’s not fret that the Fed will increase rates sooner than late 2015 or early 2016. There is an argument that the Fed will move more quickly to head off inflation---there is no inflation now and not likely to see any for a long time except in food prices.
In summary, mortgage bonds rallied strongly today, and rates improved as we regained yesterday's losses plus some. Every day we stay near current levels helps define our new, somewhat lower, range of rates, and (we hope) sets up the potential for further gains if/when economic data or geopolitical tension come into play. If you've waited this long to lock, you're ahead. Should you float or lock can be a gamble, but if you have not locked, do be careful.
Stocks rolled over again today on weaker retail sales data - of course with the stock market down interest rate markets rallied. Retailers from Staples Inc. to Urban Outfitters Inc. slumped on worse-than-estimated earnings and small-cap companies retreated. Investors are increasingly moving away from risk - at least that is what the headlines say, but I am not so sure that is the case. Yes, the stock market is on the edge of a serious sell-off but investors are turning to corporate debt as an alternative. What were considered junk bonds are now looking less like junk and more like a good return. The idea is that even if the value of stocks declines businesses will be able to pay their debts, and the rates on most of the debt are over twice as high as treasuries - and not many want Mortgage Backed Securities (MBS) with the housing sector looking weak. We will know more about housing when we get existing and new home sales on Thursday and Friday.
This recent phenomenon of rates staying near the lows with relative stability is uncommon. Normally, when we have a quick move to recent highs or recent lows, rates will continue in the same direction or reverse course with a bigger correction. This time around, however, they continue to bide their time without giving any clear signals about their next move.
Still no economic data this week as there is anything tomorrow. We still have Thursday April existing home sales, weekly jobless claims and leading economic indicators.
This morning we thought the markets would be quiet, but that did not happen, as the bond and mortgage markets had a great day while the stock market took it on the chin again on soft earnings and the increasing realization that the US and global economies are not growing as investors had bet they would last year.
The 10yr declined to 2.51% but is still not getting enough buying to push it below last November’s low (2.48%). Since the beginning of this year the rate markets have traded better each time there has been a pause in the equity markets. Do not buy into the view that the bond and stock markets are not joined at the hip now as some are espousing. As stock indexes fall, so too will interest rates. The 10yr is ripe to move rapidly to 2.25% if the equity markets don’t hold here. Tomorrow’s FOMC minutes, always with some nuggets, may drive rates lower - but not likely to break out to new low rates until April existing and new home sales are reported Thursday and Friday. The estimates are setting the bar high. Let’s not fret that the Fed will increase rates sooner than late 2015 or early 2016. There is an argument that the Fed will move more quickly to head off inflation---there is no inflation now and not likely to see any for a long time except in food prices.
In summary, mortgage bonds rallied strongly today, and rates improved as we regained yesterday's losses plus some. Every day we stay near current levels helps define our new, somewhat lower, range of rates, and (we hope) sets up the potential for further gains if/when economic data or geopolitical tension come into play. If you've waited this long to lock, you're ahead. Should you float or lock can be a gamble, but if you have not locked, do be careful.
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