Mortgage Rates Makes the Move in the Wrong Direction

After seven sessions with hardly any movement the 10yr today broke out, but not the direction I was expecting. The 10yr has ended the day at 1.98% and is now above both its 20 and 40 day averages we deem important. So far it is not serious yet, but now the 10yr and MBS rates are likely to increase more by a few more basis points to 2.02%. If that is violated, purely from a technical view, the 10yr may just climb to 2.20% before the next support level is tested. At the moment today’s increase in rate is not a major worry, just signaling that weakness in treasuries is increasing. I will hold a slight bullish bias in terms of my expectations but we will not hold long positions now. As you know, I came back to short term locking and will keep it this way until I see more data.

March existing home sales this morning caused the lower prices.  Home sales came in higher than anticipated, but the biggest mover and shaker was the year/year median price that increased almost 8%.  The increase in price linked with core CPI up last week brings back inflation thoughts. At the current sales pace, it would take 4.6 months to exhaust the supply of existing homes on the market, NAR said Wednesday.

Since the 1st of April MBS price has been in a 30BPS price range.  It broke lower today on treasury selling.  Tomorrow more housing data will be the March new home sales.  Another better housing report will increase the talk about the Fed moving sooner rather than later. Of course weekly claims will come out as well expecting a decline from last week.

In summary, I have previously noted that the models are still holding bullish biases but were losing momentum. Today the near term outlook changed to, at best, neutral. 2.02% for the 10yr has to hold, if not the 10yr target moves to 2.20%. The 10yr 100 day average at 2.01%.  Again, it may be still too early to tell but the risks of floating are increasing and locking should be considered for those who are risk adverse.