Mortgage Rates Had a Wild Swing Today

A wild swing in the bond and mortgage markets today.  Mortgage rates looked like they might come down a bit today.  The morning hours were generally positive for bond markets  as I wrote my morning report on my website www.CallTheMoneyMan.com.  The interest rate markets rose in yield at a pace not seen since the strong selling in the early part of February in the past 10 sessions.

Overbaked when seen from a short term perspective. Greece and its creditors were having their usual stand-off yesterday providing motivation for traders to reduce some of the short positions. It all went postal this morning when a Greek official threatened that Greece will not make the payment due at the end of the month unless creditors back off from demands to lower pension payments and a tax on gasoline. Meanwhile the IMF withdrew its negotiators from Brussels. On that news the bond market rallied hard taking the 10yr to 2.33% with MBS prices following.  It did not last though as the 10yr moved back to 2.40% and MBS closed a minus 8BPS.  It is weekend thinking - Greece is as slippery as grease and the FOMC meeting is next week.

The way the bond market traded today primarily when the Treasury market rallied hard this morning makes it clear that people are getting fed up with this mess - but there is no reason based on the last four months of back and forth that a deal will or won’t get done. The question is how serious is the IMF, EU, ECB, EC really are. Timing is short but that does not mean much, we have seen so many extensions no one should be too worked up about the end of this month. Between the two kicking the can has become an art form.

Next week brings the FOMC (Fed) Announcement.  This raises an important question - what do markets care more about between the Fed and Europe?  There's no clear winner here.  If the Fed says something interesting enough, markets will move, just as they would if something interesting enough happens with European markets.  Either way can have a big enough effect to push rates significantly higher or lower.  The risk of floating is higher than the reward in those cases for the simple fact that loan pricing deteriorates faster than it improves given equal market movement in either direction. 

If next week ends up being bad for rates, it could be the sort of "bad" that leaves a lot of people scratching their heads, wondering how things went so high, so fast.  Risks are centered on Wednesday afternoon, but there are plenty of historical examples of markets taking a "lead off" ahead of a big event.  Whatever you decide to do, make sure you have a plan as to when you'll lock and under what conditions if you are currently floating.