Mortgage Rates Have A Calmer Day

A much calmer day, as we had very little movement unlike the unusual move in rate markets we saw yesterday.  The economic data was dead on market expectations and did nothing to change bond traders' ideas as to what the Fed will do tomorrow.  We have been trading in a fairly narrow range, seeking out some small gains as MBS found a bottom after yesterday's sell off and simply treaded water.  We are still trading well below ALL of our moving averages. The closest moving average to current pricing levels is the 50 day moving average and MBS made a feeble attempt to reach it but missed the mark and retreated.

Why is the market so damn worried about a 0.25% increase in the FF rate? After months of speculation, I do not think it that big of a deal unless investors and money managers believe the opposite of what they have been saying for months, that the US economy can stand up against global economic declines. Get it over - Yellen and other Fed officials have made it clear that when the time came to begin normalization it would be a very ‘gradual’ process. Meaning there will not be a parade of increases every couple of months. If the Fed does not move tomorrow, the policy statement will be about what it has been - good economy but still concerns about the quality of the job growth - and although it will not be clear there will be worries over the potential of a systemic risk in global markets stemming from liftoff.

To add another level of fear from the Fed - how banks will fair when short rates begin to increase. How much of bank deposits will move to money markets, thanks to Dodd/Frank banks have to stay in compliance with liquidity requirements?

Prior to the 1:00 PM announcement markets will have data to chew on - weekly claims are expected to be unchanged, and the key report, August housing starts and permits.  Yesterday the volatility was in stocks and bonds, today its crude oil and gold. Crude increased $2.50 to $47.11 after failing to break below $40.00 two weeks ago (just had to gas up as the fears raised the gas prices around here another 30 cents), gold up $16.00.

In summary, bonds remained at weaker levels today in anticipation of tomorrow's Fed Statement.  Folks floating at this point will not lack for adrenaline when the news hits, as it could well set rates' direction for the next several months.  We have seen dramatic market movement before, as recently as the "Taper Tantrum" of May 2013, when rates rose over 1% less than 3 months.  It is no fun being caught floating in situations like that, which is why a majority of my loans are locked.  I would rather lock and be wrong than float and be wrong, I have seen too many loans die due to optimistic lenders/borrowers over the years.