Mortgage Rates Back on Track

Mortgage rates got back on track today after giving up a fair amount of last week's gains yesterday.  Stocks decline interest rates decline. A pattern that is very predictable these days. Today the key indexes were under pressure all day, doing what they do regularly after a rally the previous day. It started in Europe then rode the waves to the US - these days it is also one of the predictables, weakness in Europe spreads to the US. It is a global market now. No serious economic data today and nothing on the calendar tomorrow.

Treasury sold $26B of 2yr notes this afternoon with a solid bid.  The solid results helped the treasury market today although it is the weakness in equity markets the prime driver.  No data tomorrow except weekly MBA mortgage applications. Tomorrow Treasury will auction $35B of 5yr notes. Janet Yellen will deliver a speech Thursday in Massachusetts.  She will not take questions, so it’s up to Yellen to decide if she wants to guide market expectations by clarifying whether she is among 13 of 17 officials who saw a rate rise as appropriate this year. Cannot wait to hear her explain why the Fed is so concerned now that inflation is not too far off.

Today was very tempting to again consider a cautious float, but I do not like this volatility and have been talking with customers who are within 30 days of closing to lock.  The technicals (price action) are now bullish for US bonds and MBSs, but it has been too volatile since the FOMC meeting. Regardless of the Fed’s apparent concern about increasing inflation, there is no inflation now and will not be for maybe two years. Nevertheless Fed officials must have gotten the memo from Janet Yellen, keep touting inflation - we need more ammo to raise interest rates. If our view of continuing declines in global economies is correct US interest rates at the long end (10s and 30s) should continue to decline. The interday volatility however makes it difficult to float unless you are prepared for wide swings from one day to another. Just cannot get the equity market bulls to capitulate yet. All that said, tomorrow is another day that may swing my vote to float – however, if you cannot stand looking at price declines best to keep locked, especially loans that are close to closing.

In summary, a very well received day for interest rates following yesterday's punishment.  I still need a little more to be convinced, therefore for the time being locking into today's rally is my strategy for loans closing within 30 days.  Too many variables and volatility affecting day to day markets...