Mortgage Rates Unchanged Amongst Volatility

If you are looking for what we mean by market volatility, today is a good example. Mortgage rates were lower at first today. The bond markets that underlie mortgage rate movement continued taking cues from global volatility surrounding yesterday's big news out of China. This morning the US stock market was under more heavy selling pressure but as the afternoon wore on the key indexes reversed and ended a little better. The rate markets also succumbed to their morning improvement and when the 10yr note auction was very weak in terms of demand the 10yr lost its momentum.  

China’s re-valuing it’s currency still causing confusion and uncertainty as to what the next move from China will be. It’s economy slowing rapidly, an attempt to make its exports more competitive surprised markets yesterday, today the knee jerk reactions reversing somewhat but markets remain on edge. Today the US dollar is weakening against the yen and euro currency adding more questions.

We can debate the hell out of this now but to little or no avail. What we know is China’s economy is slowing quickly, China is the second largest economy next to the US, China decline will affect all of the global markets, the Fed has a bigger hill to climb now in terms of increasing rates in September as most believed and many economists still do, and there is absolutely no inflation in prices. As China goes so goes the rest of Asian markets. What we do not know - will China continue to use monetary moves to try to reverse its economic decline (7% growth in Q1 and Q2) now the outlook is less optimistic.  

Tomorrow a very key domestic report - July retail sales, the expectation is for overall sales up. Weekly claims also are expected unchanged, along with July export and import prices. Later we will see the number on June business inventories, followed by the afternoon where the Treasury will issue a new 30yr bond, selling $16B.  

In summary, the outlook remains positive for US interest rates at the long end of the curve - here though is the rub as the work will not turn negative until the 10yr note moves above 2.24%. A pause after dramatic rate movements (either up or down) is hardly surprising, and does not prove the trend to lower rates is ending. I will continue to consider floating loans for risk-tolerant clients, but will do so warily. The trend is still our friend (or at least not our enemy) at the moment.