Mortgage Rates Are Steady After Roller Coaster Ride

Mortgage rates moved lower again, with the best options available in the morning hours.  After that, bond markets including Mortgage Backed Securities (MBS) moved back into weaker territory on the day, prompting some lenders to raise rates in the afternoon.  The most prevalently quoted conforming 30yr fixed rate for best-case scenarios remains at 4.25%, even after the roller coaster ride today. 

What began as a nice move this morning in the bond market turned out to be a dud. MBS prices fell off their best levels about Noon this afternoon, the 10yr note declined to 2.51% this morning but also gave up most of the improvement seen this morning. There was nothing specific that led to the softening, just the week-end and a stubborn stock market that continues to hold but doesn’t improve a lot.

Treasuries and MBSs rallied this week, giving the 10yr yield its biggest decline since May after data showed the U.S. economy shrank more than analysts predicted and consumer spending rose less than estimated. Interest rates are ending the week on a good technical buy signal that we got on Wednesday, although disappointing today the yield on the 10yr note decline 9 basis points this week.

Next week’s data may have taken some enthusiasm away today. Next week is employment week, the June employment data will be reported on Thursday next week because the markets will be closed on Friday.  In between Monday and Thursday - May pending home sales, the ISM manufacturing index for June, the ISM services sector index for June, May factory orders and the stock and bond markets will close at Noon on Thursday. We don’t expect much selling in the stock market on Monday as firms and funds want to dress up their quarterly reports as it started late this afternoon. Tuesday and through the remainder of next week should present an increase in market volatility. As long as the 10yr holds below 2.58% on a close the slight bullish bias will remain intact. Key economic measurements next week will set the table for the next move in stocks and bonds.

Keep more focus on US and global economic data next week and less on global geo-political events. A lot of uncertainty in global events but there has been no noticeable reaction to any of it recently; even crude oil has stabilized and backed off the highs of two weeks ago. Important to know what ball to watch and not be side-tracked looking the other way.

In summary,  I think floating into Monday is a reasonable option, but I would absolutely be ready to lock as the market can go either way right now. I think the trend over the next week will be a slow move slightly lower, but day to day is always a gamble when you're in the middle of the range.