Mortgage Rates Extremely Volatile - Higher Today
Mortgage rates moved higher
today. Traders are under certain constraints when it comes to the end of
the month and those constraints were helpful for rates last week. With
the new month underway, we saw a bit of a push back in the other direction even
before this morning's comedy of errors surrounding economic data. The most
prevalently quoted conforming 30yr fixed rate for best-case scenarios remains at 4.25%.
Not a good day for the bond and mortgage markets. After the strong recent improvements and ahead of this week’s key news on Thursday and Friday traders are squaring positions, covering some of the long positions and investors not willing to continue buying ahead of the ECB meeting on Thursday and May employment data on Friday. Whether rates will continue their decline depends largely on what the European Central Bank and the BLS report data reveal. A month ago at the May ECB meeting Mario Draghi made a strong point the bank was ready to lower rates and begin another round of QE to support the fledgling EU economy and attempt to increase inflation as the EU countries are dangerously approaching deflation. Over the last month that has been one of the major factors that have driven EU rates lower and fueled the decline in US treasuries. The best and safest country in Europe is Germany, its 10yr bund rate is lower than the US 10yr and in turn a better place to invest. The German 10yr yields 1.38% while our 10yr is 2.54% this afternoon.
The May employment report, always a wild set of statistics, usually sets off a lot of volatility as the forecasts usually deviate from the estimates. The US 10yr, the driver for MBS rates has fallen quickly, from 2.65% on 4/30 to 2.44% last Friday. A big move discounting the ECB rate cut and bond buying and Q2 economy struggling after Q1 GDP declined 1.0%. Some of that rate decline can be put in the Ukraine/Russia column, recently though the fear factor has receded. It is very likely that all the possible good news has been already digested in the US market - it is also very likely that there will not be any improvements in US rate markets until Friday at the earliest.
Not a good day for the bond and mortgage markets. After the strong recent improvements and ahead of this week’s key news on Thursday and Friday traders are squaring positions, covering some of the long positions and investors not willing to continue buying ahead of the ECB meeting on Thursday and May employment data on Friday. Whether rates will continue their decline depends largely on what the European Central Bank and the BLS report data reveal. A month ago at the May ECB meeting Mario Draghi made a strong point the bank was ready to lower rates and begin another round of QE to support the fledgling EU economy and attempt to increase inflation as the EU countries are dangerously approaching deflation. Over the last month that has been one of the major factors that have driven EU rates lower and fueled the decline in US treasuries. The best and safest country in Europe is Germany, its 10yr bund rate is lower than the US 10yr and in turn a better place to invest. The German 10yr yields 1.38% while our 10yr is 2.54% this afternoon.
The May employment report, always a wild set of statistics, usually sets off a lot of volatility as the forecasts usually deviate from the estimates. The US 10yr, the driver for MBS rates has fallen quickly, from 2.65% on 4/30 to 2.44% last Friday. A big move discounting the ECB rate cut and bond buying and Q2 economy struggling after Q1 GDP declined 1.0%. Some of that rate decline can be put in the Ukraine/Russia column, recently though the fear factor has receded. It is very likely that all the possible good news has been already digested in the US market - it is also very likely that there will not be any improvements in US rate markets until Friday at the earliest.
The ISM people generated a lot of angst this
morning. The original release said May manufacturing index fell from 54.9 in
April to 53.2 pushing stocks lower and supporting the bond and mortgage
markets. At 10:00 EST the index was changed to 56 then at 11:00 the index was
changed again to the final reading at 55.4. The confusion was due to a software
problem according to a spokesman.
Manufacturing under the microscope now - many argue the manufacturing sector is set for a strong rebound while an equal number of analysts and economists question that outlook. At the moment with what we have to look at and how it is going to play out moving forward we are on the side of those that are questioning the more optimistic view. Always subject to change but betting on it now has more risk than betting against it.
The selling in the bond market took the 10yr yield to its 20 day average where it held, a decent sign but not much given the news later this week. The 10yr and MBSs continue to hold technical bullish biases but we are not expecting much now until later this week. The prudent thing to do now is not to become too aggressive with floating. It is difficult to build any case for yields to decline ahead of the ECB on Thursday and May employment data on Friday.
In summary, beginning what is perhaps the most important week of the year (so far) for rates I believe a cautious stance is warranted. Take your pick on the list of items that could derail the recent improvements we’ve experienced. An important ECB meeting on Thursday followed by the all-important US Jobs Report on Friday along with other pieces of important and relevant data any of which could cause a quick backup in rates if the data goes the wrong way. Locking is the prudent choice here.
Manufacturing under the microscope now - many argue the manufacturing sector is set for a strong rebound while an equal number of analysts and economists question that outlook. At the moment with what we have to look at and how it is going to play out moving forward we are on the side of those that are questioning the more optimistic view. Always subject to change but betting on it now has more risk than betting against it.
The selling in the bond market took the 10yr yield to its 20 day average where it held, a decent sign but not much given the news later this week. The 10yr and MBSs continue to hold technical bullish biases but we are not expecting much now until later this week. The prudent thing to do now is not to become too aggressive with floating. It is difficult to build any case for yields to decline ahead of the ECB on Thursday and May employment data on Friday.
In summary, beginning what is perhaps the most important week of the year (so far) for rates I believe a cautious stance is warranted. Take your pick on the list of items that could derail the recent improvements we’ve experienced. An important ECB meeting on Thursday followed by the all-important US Jobs Report on Friday along with other pieces of important and relevant data any of which could cause a quick backup in rates if the data goes the wrong way. Locking is the prudent choice here.
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