Mortgage Rates Steady

Mortgage rates came back a little bit during the day after the start to hold steady from the previous day’s close.  The Mortgage Backed Securities (MBS) market opened weaker this morning but gained some momentum as the day went on.  The 10yr note opened at 2.64%, then fell back to 2.60% to end unchanged taking the MBS markets along. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios remains 4.375%. 

The theme for this past week turns out to have been the culmination of a short term trend higher in rates, beginning in late May.  The most aggressive days of that move were in the previous week, but Monday and Tuesday of this week kept the pressure on.  This raised the possibility that the uptrend would continue, but the slowing pace provided hope for a correction. 

As of yesterday, we finally got the drop in rates needed to interrupt that trend.  This also opened the door for a deeper correction if rates could have improved today.  But because we instead saw the move slightly higher and sideways, the best characterization for rates at the moment is that the recent move higher has run its course, but no new trend has been decided on yet.  That's a less optimistic scenario for those who'd like to float in the hopes of further improvement, but still a less urgent scenario than earlier in the week for those inclined to lock.

How markets will take the increasing violence in Iraq, and the injection of Iran into the equation isn’t clear. Oil is one issue, Iraq is a huge oil producer and controlled by Shiites that head up Iraq's political groups. Likely the Sunnis would like to take control of oil but the geography isn’t presently in their favor. The oil is in southern Iraq while so far most of the fighting is in the north and the Sunnis would likely have to take control of Baghdad first. Iran has already come to the aid of Iraq's Shiite-dominated government, deploying Revolutionary Guard units to fight Sunni Islamist fighters and to guard the capital, as well as the Shiite holy cities of Karbala and Najaf.

To start next week we don’t expect interest rates will increase much, nor the stock market change much ahead of the FOMC on Wednesday and likely still trying to handicap what problems the Iraq situation will eventually lead to. Technicals are still slightly bearish in the bond and mortgage markets, while still slightly bullish in the stock market. After weeks of very little market volatility in the stock and bond markets, next week after the FOMC meeting and Yellen’s press conference the volatility should increase as investors and traders increasingly sense there is going to be directional moves in both stocks and bonds.

In summary, the benchmark 10yr Treasury is sitting right where it began this past Monday although mortgage pricing is actually just a tad worse on the week. I don't see anything out there to tell us that the odds are in our favor that mortgage pricing will improve soon. Certainly it can, but prudent minds with a closing date in the near term should seriously consider locking in current pricing. For the risk takers among us with a little longer to go to closing feel free to place your bets.