Mortgage rates moved quickly back to their recent highs
today as investors race to reposition for a perfect storm of risks.
If you stayed with me the last few weeks and acted on my
comments you avoided the wrath of clients that watched interest rates increase
in a spike not seen since early Feb when rates jumped 28BPS in seven sessions.
We can talk all day why rates are headed higher but you have been exposed to
all of it many times recently - what I would like to stress once again, it is
extremely difficult and usually not timely to simply read newsletters, the WSJ,
listen to CNBC, Bloomberg, or Fox Financial News. The only way to avoid the
kind of incongruities that permeate markets today is to focus most attention on
where the money is going regardless of what at times may appear to be
ass-backwards from the chatter. That is technical analysis – and I feel that I
can be one of those resources that can be helpful to you to analyze markets
based on the study of money flow.
It is a step by step never ending study - Friday and this
morning for example there was anticipation that we were expecting some support
on the 10yr note at 2.25%, the double top on the 10yr yield - but I also knew
better than to float. The 10yr has not held, now 2.27% and MBS rates are
climbing now 25BPS higher than three weeks ago. Will the market rebound? Yes we
do expect that after the almost straight line higher in rates, but from what
levels is where the rubber meets the tarmac. Looking at those underlying
fundamentals it is difficult to expect substantially higher interest rates. Q1 GDP will end up negative, Q2 GDP most
likely won’t show much growth, inflation is not on the radar and with slow
growth hear and in Europe and China not likely to be a threat. That said, we in
the mortgage industry have mostly gotten stung by the swift increases lately. I
have mentioned it a number of times in the past - at these low levels any
selling will be exaggerated - historically rates are extremely low. Last but
certainly not least -always remember markets are forward thinking.
In summary, our Friday MBS rally fizzled out today, as we
lost all of the gains and more. That's
typically not the case following a disappointing jobs report, which makes
today's losses even more troublesome. We
are close to the weakest MBS pricing (highest rates) in 3 months now. This upward rate move has to be respected,
and I'm advising my borrowers to lock early, unless they have a serious
penchant for gambling and nerves of steel.
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