Mortgage Rates Increase a Little

Mortgage rates moved slightly higher today, erasing the modest improvements seen on Friday. Global equity markets rule these days - equity selling supports lower interest rates, buying removes that support. After seven consecutive selling days in US and global markets today prices increased removing the safety factor of money moving into treasuries thus supporting mortgage rates.  

Interest rates have had a good four week run, the 10yr declined from 2.44% on 7/31 to 2.14% last Monday. MBS rates did not fall that much.   Treasury yields and MBSs improved because global equity markets had huge declines. With no inflation there is a certain amount of underlying support for long dated treasuries that should keep rates from increasing too much in the intermediate outlook but if global equity markets shrug off the their bearish outlook rates will have a very difficult time declining much.

The other pressing factor now for the bond and mortgage markets - Treasury will begin its quarterly refunding tomorrow with a 3yr note - Wednesday though $24B of a new 10yr note is on the auction block. Tomorrow Q2 productivity is expected after declining in Q1, unit labor costs expected up after increasing in Q1. June wholesale inventories expected up as well.

Looking for hard answers about where rates are headed is searching for the needle. First, interest rates are extremely low now. Second it depends on how much selling will occur in the global equity markets. Global economies are slowing even as our Fed continues to say increased growth and inflation is just around the corner. Will the economic outlook change and will inflation notch up even a little? It is important to keep in mind that central banks have not tread these kinds of monetary stimuli, 100s of ideas and forecasts but not much foundation to measure on. Greenspan on Bloomberg - he believes there is a bond market bubble forming. He admitted he missed the bubble of 2008, saying when he reviewed the situation that led to the financial collapse he found that relying on historical economics was a mistake. And another reminder, Greece and creditors set to debate Greece’s need for more money is coming in 10 days.

In summary, I continue to favor locking all loans closing within 30 days. I do not see much benefit in floating as there is much more risk to the upside then to lower interest rates. If you do wish to float, do so with a lot of caution. I think the next opportunity for rates to move lower will be after Retail Sales and import/export prices on Thursday.