Mortgage Rates Better Today

Rate markets were better today, but the 10yr was unable to break from its solid 3 week range between 2.14% and 2.30%, as the low rate this afternoon 2.14%. There was lots of data today, better than thought. Vice Chair of the Fed, Stanley Fischer said central bankers are weighing the risk of raising them prematurely against the danger of having to play catch-up if they wait too long. He also said policy makers will consider global growth as they begin to raise interest rates, and they could increase them more gradually should the world economy falter. Presently the majority believe the Fed will increase the FF rate at its September meeting, as today’s data lent support to that idea.

Today’s economic releases showed April durable goods were generally in line with forecasts. April new home sales finally showed nice improvement. The housing rebound was strongest in the Midwest, the highest since April 2008. Supply of new homes compared to sales pace declined to 4.8 months’ supply from 5.1 months last month. The median price increased 4.1% after +3.8% in March. Most now believe supply will begin to increase now that weather issues are no longer hurting construction - but the increasing prices will lessen affordability.

May consumer confidence from the Conference Board was also better than thought.  March Case/Shiller 20 city home price index came is as expected.  This afternoon Treasury began this week’s borrowing with $26B of 2yr notes, the auction got solid bidding.

In Europe, Greece still garners the headlines - it’s ability to make the 305 million euro, June 5th, IMF payment has been questioned by members of the Greek government. Now Spain is beginning to churn. 

On Friday Commerce Dept. will report the preliminary Q1 GDP data.  If GDP is better it will not sit well for the bond and mortgage market, a softer than expected decline will probably add some support but may also support stocks momentarily on the idea the Fed may have to hold off increasing rates. Keep in mind though it is 1st Q data, Q2 releases have not been that strong but are better than in Q1.

In summary, the 10yr note is at the bottom of its 3 week range at 2.14% down 7BPS today and below its 20 and 200 day averages. MBS prices moved above the 200 day average also. The rally should not yet be seen as a ruin to lower rates - more preparing for Friday’s Q1 GDP report and the June 5th required payment from Greece t the IMF. The dollar continues to strengthen, also a support, crude today lower tweaking the always changing outlook for inflation. Our fur momentum oscillators are improving but not yet positive. The only risk worth thinking about is floating if you are not closing in the next 30 days.  Anything else is not advised.