Mortgage Rates a Bit Higher

Mortgage rates were a bit higher this afternoon after the three reports this morning showed mix results.  The market ignored the data that was released, but started to retreat after the poor showing of the 7yr note auction ended.  This is the second day in a row where the demand was weak as shown with the 5yr the previous day. 

This morning the bellwether 10yr traded as low as 1.94% but after the 7yr auction and with GDP in the morning the rate jumped back over 2.00% to 2.01%. Technicals still about neutral and cannot get traction to hold the 10yr below 2.00%. Yellen’s testimony the last couple of days did not settle anything about when markets expect the Fed to begin increasing interest rates. Those that were holding to June did not change their thinking, those (like a few of us) still believe the Fed will wait longer were not convinced with her comments. For now we continue to look for the Fed move toward the end of the year. Not sure what difference it makes though since markets expect rates will increase, the timing may generate debate but meaningless in the wider perspective.

Tomorrow's data and events stand a chance to take rates in either direction.  At current levels, rates can afford to be receptive to the big data release, which is the 1st revision of Q4 GDP early in the morning.  If the data is much stronger than expected, rates could remain under pressure.  If, however, GDP comes in weaker than expected, there's room to improve.  Beyond that, it is good to keep in mind that rates will not always move in a logical direction based on the data, and there is more risk of that on the last day of the month where many traders are moving money for reasons that are unrelated to market fundamentals.

In summary, rate markets treaded water today, albeit with small losses. I believe we are establishing the upper end of the rate range. Any pronounced gains would require serious motivation, and I do not see that looming. I am counseling borrowers who are happy with their pricing to lock and eliminate the risk of losing ground, at least until we start trending lower on rates, not sideways to upward.