Mortgage Rates Settled Down

Mortgage rates had one of their least exciting days of the week today, moving just modestly lower from yesterday's latest levels. After this week’s volatility, today it was a rest period. Q4 GDP was a none event coming in where it had been expected and its old data, the U. of Michigan sentiment index was better than expected compared to two weeks ago.   Neither got any response with Q2 ending next Tuesday.

This week’s market moving headlines were the increase in the price of oil and the weakening of the US dollar against the euro and yen. Those two issues drove interest rates down swiftly over the past three weeks, until Wednesday when the impact of lower demand for US sovereign debt showed up in the 5yr and 7yr notes auctions that were two of the lowest demands for Treasury debt in the last year. Once the demand proved the dollar and crude were shaking confidence that had built up for lower interest rates traders hit the door running, sending the 10yr rate up 14 bps in 2days and dropped MBS prices 74 bps.

Next week is employment week, the one week a month that always can be counted on to set off increased volatility when the data is released. There are a number of interesting data points to consider, such as February personal income and spending, along with pending home sales from NAR to open the week on Monday. Tuesday we see March Chicago purchasing managers index and March consumer confidence. Wednesday ADP March private jobs report, March ISM manufacturing index, and February construction spending. Thursday we have weekly claims, February factory orders.  Next Friday banks will be open (bond market) but as we know it now the stock market will be closed for Good Friday, as well as likely an early close for bonds. Next week is also full of Fed speakers. One last thing - Tuesday ends the quarter.

In summary, the selloff in mortgage bonds was stopped by strong support levels. We now have get back above a key resistance level before we can see pricing improvement and lower rates. The benchmark 10yr was able to hold below 2.00 yesterday, so it seems like we have good support overhead and plenty of room to run back down to the 1.85 area.