Mortgage Rates Uncertainty Equals Volatility

Mortgage rates - to spell uncertainty, begin with using the letter V. Stocks and bonds are demonstrating increased interday and intraday volatility these days.  I expected it and warned it would continue for weeks as investors face the Fed, the strong dollar and declining global growth. Interest rate markets moving in wide swings this week, with the stock market leading the way. Next week the FOMC meeting with most, including a number of Fed officials, expecting the Fed will send the signal that indicates the first Fed increase in rates in a decade will begin at the June FOMC meeting. Yes, that is what we hear but when we watch how markets are acting the conclusion is there is no consensus, just a lot of guessing based on the Fed’s insistence that the bank will increase rates soon. Defining soon is where the rubber meets the road. For all of the ink and media attention and all of the Wall Street bulls market action does not mirror any certainty about when the Fed will move. The word ‘patience’ used at the Fed to point that the Fed will be data dependent has been in the FOMC policy statement the last two meetings - if the FOMC statement removes ‘patience’ in the statement markets believe that will be the signal that rates will increase at the June meeting.

Interest rates, especially MBS markets were swinging in wide moves through the day. The roller coaster was is full speed today as it was up, then down, then all around. Between now and next Wednesday, look for continued volatility with no serious changes in interest rates or stock indexes.

Technicals on the models remain slightly bearish and that includes MBS's. Do not stray from how markets are reacting to listening to the chatter, whether from us or anyone else. One key factor, global interest rates are declining quickly; US rates should find solid support if the trend continues. I still do not believe US interest rates will increase dramatically in the next six months.

In summary, the gains were short lived as the final auction of the week was a dud. With MBS prices ending downward, I was almost leaning to continue to float, but there is still too much risk out there that I recommend if you do not lock these rates in now, this roller coaster is carrying a heavy load that could derail your cookies if you catch my drift.