Mortgage Rates Fall Modestly Ahead of FOMC Meeting

Mortgage rates fell modestly to begin the week following several weaker-than-expected economic reports.  Treasuries tried to improve today as the 10yr note yield declined 4 basis points to 2.07% this morning but it could not hold against the force of FOMC on Wednesday. The stock market rallied but I do not give it much credit, volatility is very high and the key indexes are just swinging in wide interday day ranges and still are essentially unchanged this year. Crude is continuing to decline, and with the strong possibility of it falling further, it is  making the Fed nervous about the lack of inflation.

The four economic reports this morning were weaker than forecasts, no concern though with the FOMC taking all the breath from the markets. Tomorrow the only data is February housing starts and permits.   

The FOMC meeting begins tomorrow - uncertain what the paranoid stock market will do, but I do not expect much movement in the bond and mortgage markets. The 10yr and MBS technicals remain bearish and will not change tomorrow. Wednesday afternoon is when the rubber meets the road as I will take all bets that Wednesday afternoon after 1:00PM US financial markets will be quite volatile. If I am correct that the Fed will not increase rates this year and the FOMC leads markets to that idea, look or treasuries to break to the down-side in yields and MBS prices to increase. If we are wrong and the take away is for the lift-off in June or September the bearish outlook for rates will increase. The Fed and markets keep seeing the economy on a growth path, mostly because of increasing employment - the Fed is want to even mention any serious economic headwinds, to do so would send equity markets down, maybe as much as 10% on the indexes. Wall Street and the Fed have to do the ostrich thing - their comments are holding markets steady now. The economy is slowing, the data continues to come in weaker and the weather, although messy in the NE, and is not the factor we saw last year to ignore data points.

In summary, the good news is that rates are improving if ever so slightly, but could soon become extremely volatile on Wednesday with the FOMC meeting wrapping up.  I am suggesting floating if you can handle the risks, but be prepared at 1:00PM to see what happens when the FOMC ends – as everyone will be on their computers ready to push some buttons.