Mortgage Rates Hit Three-Week Highs

Mortgage rates did not like what happened today with Wall Street and the FOMC announcement as they have hit three-week highs after teasing us when rates dipped into the three’s.  The most prevalently-quoted conforming 30yr fixed rate for top tier scenarios was pushed a bit as 4.0% is still there depending on various fees, but 4.125% is now back into the picture. 

As is always the case after the statement is released, a lot of volatility and discussion about the meaning of it to the markets.  Trading in the first minutes after the statement had a lot of movement as the MBS took a big hit, but resided by the end of the afternoon.  It's important to understand that the Fed ending QE and today's rise in rates are not in a direct causal relationship. Market participants unanimously agreed that today would mark the end of the Fed's third round of quantitative easing (QE3) and that part of the announcement was no surprise.

The next event now, besides the continuing economic reports, is the mid-term elections. Will Republicans gain control in the Senate? Will it matter to markets or the political stalemate in Washington? Probably not, it is unlikely any serious legislation on any issues will get passed and signed by the President, so the next two years should be more of the same we have had the last couple of years.

Now that the FOMC is behind us, markets will turn to tomorrow’s advance Q3 GDP report at 7:30am.  The advance report lacks some of the third month’s data, it is always revised, nevertheless traders will react to it. Weekly claims tomorrow expected down 3K to 280K, claims have been declining the last six weeks after hugging 300K for a month.

The 10yr yield ran up to 2.36% this afternoon on the FOMC news but did fall back to 2.33%.   The 10yr is now above its 20 day average and when it ran to 2.36% at the 40 day it held.  Interest rates have increased 9 out of the last 10 sessions. Technicals are now bearish with the Fed more optimistic about the economic future. The yield on the 10yr now trading where it was on Oct 8th, between now and then a swing of 50 basis points in its rate.  Seen simply from a technical perspective it suggests interest rate markets are confused about the economic outlook and global economies and interest rates regardless of what the dally chatter is---including our own.

In summary, the Fed came out a bit more upbeat in it's assessment of the future economic picture while ending outright purchase of bonds and mortgage securities. Pricing worsened somewhat today but not as much as might be feared. This makes me ambivalent in my opinion on locking except for short term locks (less than 15 days) where I still think locking is appropriate.

Keep a strong look at the markets and continue to cautiously float if you do want to take a risk. Remember, if you want to know the benefits of locking your rate today versus floating, simply give me a call at 314-744-7806 or visit me on my website at www.CallTheMoneyMan.com. I have access to real time Wall St. data and instant market alerts with breaking news that I monitor throughout the day to assist us on making the informed decision.