Mortgage Rates Had Little Movement

Mortgage rates were a bit funny today as they really did not do too much, but did ever so slightly move downward to set off alarms for people to consider not floating but locking. It was certainly confusing after yesterday's volatility of which some of us thought there might still be signs for improvement.

The bellwether 10yr traded unchanged this morning but this afternoon increased, 30 yr MBS markets opened weaker this morning then dropped hard about 1:30 this afternoon. As I mentioned, there were some alarms, as the bond market is very volatile at the moment - as all of our work turned bearish on Feb 6th and until that changes, some of us might treat this as a bearish moment for rates.

The fact that rates were unable to capitalize on yesterday's decent improvement is very important. It lets us know where the focus is for the bond markets that underlie rate movements. Rather, it confirms that focus is where we assumed it to be - squarely on Europe. The large, long-term mover toward lower rates in Europe over the past year has been the most important factor in our ability to carve out increasingly lower mortgage rates. Europe has reached a point where some market participants are beginning to wonder when rates will bottom out. The sharp move higher in February reflects that.

Prices more than likely will not improve now until Janet Yellen's testimony next week to Congress (at the soonest). Yellen will have to answer why the FOMC is still dragging its feet on increasing rates? Some of us have long held the Fed would wait later this year to begin the lift-off, although we are in the minority. The economy is not growing much and there is no inflation. The Fed should not be in a hurry to start increasing rates. If and when rates begin to increase the Fed is not likely to press the accelerator too hard.

Tomorrow there are no scheduled economic reports. Traders and investors are more likely to keep their hands in their pockets with Yellen's testimony next week.

In summary, even though interest rates have increased somewhat in the last two weeks, we are not expecting rates will increase in any significant way. That said, it is clear that would be buyers are in no hurry to step up, a slight rate increase has already done some damage. This entire economic recovery over the last 8 years has not included the housing sector - which is the most significant sector in the US, employing many more workers than in auto manufacturing or another sector, and with higher pay levels. This is the main reason why the US is still just stumbling along. Realistically, floating in the hopes of lower rates probably does not make much sense until/unless February's trend is definitively broken.