Mortgage Rates Slightly Higher to End Solid Week

Mortgage rates were slightly higher today, but remained much closer to the best levels of the week seen yesterday.  In general, this week has served as a correction to last Friday's excessive losses.  In that regard, it has been almost totally successful considering today's rates are right in line with last Thursday's. 

There was not much going on today in the financial markets that underlie mortgage rate movements.  The economic data in the morning served as a temporary speed bump for a moderately weak trend that had been intact since yesterday morning ("weakness" equates to upward pressure on rates in this context).  But once again, our perceptions of weakness and strength are largely arising due to short term 'corrections.'  In the current case, yesterday's Retail Sales data started the morning off with plenty of strength for bond markets.  The weaker trend mentioned above was simply a correction to that strength.  It ran its course by this morning and left bond markets to drift sideways into the weekend.

Retail sales has dropped for the last 4 months although we admit the data does not include internet sales data that has increased. Inflation is way down the road based on the last few months of PPI declines. And, crude oil is about to launch into another round of dropping prices. The savings in gasoline costs, widely thought to have boosted consumer spending; so far it has not, the economic bulls excuse is the lack of increased spending means consumers are saving their money instead of spending it. That is a huge pill to swallow.

Crude oil is on the starting lock for another run lower in prices. Too much oil and nowhere to put it as production has lessened but still demand is not increasing. Next week - the FOMC headiness the week. Technicals are coiling, that usually precedes a big move as those on the wrong side have to jump off the train.

In summary, two big misses on important economic data and an equity slide was not enough to propel mortgage bonds higher. In normal times rates would come down on a day like this but we are certainly not in normal times. During periods like this the risk of floating tends to be too high. If you are a risk taker you can float into next week’s FOMC meeting but those conservative in nature should be locking.