Mortgage Rates Caught in Vicious Cycle

Mortgage rates are caught in a vicious cycle right now that is not too pleasant.  Basically, for the past seven weeks, they have been increasing with a few days where they allow us to catch our breath before they move upward again.  Today, however, it was a quiet today as the world waits and wonders about what will happen with Greece. This morning May durable goods were soft, May new home sales stronger than expected. Neither got much attention with Greece the main concern these days. Greece made a big step forward over the weekend agreeing to some of the requirements that have been laid down by creditors, the question hanging now, is it enough.

This afternoon Treasury sold $26B of 2yr notes that met with good demand. Tomorrow the final Q1 GDP will come out early, but the expectations are not great as weather will be taking all of the blame. 

Q2 almost over - the Atlanta Fed GDP Now has revved up recently as housing data improved, getting close to where economists’ have been estimating but still not quite there.  Also tomorrow Treasury will auction $35B of 5yr notes - over the last month Treasury auctions have been seeing good demand.

Any recent price gains have yet to change the current bearish technical picture. The bellwether 10yr tethered between 2.40% and 2.30% for most all trades in the last almost three weeks. Fundamentally, the economic outlook is improving, little steps but better keeping the Fed in play. I still do not believe the Fed will move this year but presently that is the contrary view held by most economists and analysts. My reasoning, the stock market while looking solid now will soon retreat not a small one but a huge sell-off - if I am correct the Fed will hold off and the bond and mortgage markets will benefit.

In summary, nothing much has changed. It continues to be very risky to float in this environment. If you are hoping for rates to move lower, then we need the Greek deal to fall apart, or the Fed to become much more dovish on their rates hike outlook. We did have some morning weakness but bonds have rebounded so if you plan on locking look to do so toward the end of the day.