Mortgage Rates Up

Mortgage rates up until today have been holding steady as they waited for the big announcement from the Fed on Thursday. The bond market and MBS markets have been giving up most of the technical bullishness over the last two weeks. I however, did not expect the substantial increase in rates in one day as what happened today. After trading quietly for almost three weeks, trading in a narrow range, the 10yr and all of the curve broke hard today. The 10yr note yield increased to 2.28%, and MBS prices were down as much as 50BPS. 

Most of my interest was on the 2yr note yield, as it increased to its highest level in over 4 years. The 10yr yield is the highest since early August. Stocks rallied today although I do not see it as a direct correlation. Nevertheless markets took the August retail sales as a huge positive, not sure why even with the upward revisions in the July retail sales from what was originally reported. Sales were good but to put the stock market and bond market on this kind of a move prior to the FOMC on Thursday is not the entire story. August industrial production was weak, down now 6 out of the last eight months. The NY Empire State manufacturing index also a big disappointment. Auto sales are slowing form the hell-bent pace of the last six months. Europe is slowing, China is now seen as much weaker than the government has been saying. If short term rates increase on a Fed hike the auto industry will see some weakness. The best I can glean is that the lack of enthusiasm for treasuries finally gave way on positioning ahead of the FMOC.

Markets still believe the Fed will not move on Thursday, imagine what the Treasury market will do if the Fed does hike. Not likely now with the movement today in treasuries, with most traders and investors believing the Fed will not move now yet still seeing the 2yr note at a four year high, a move by the Fed would disrupt markets, something the Fed stays clear of.

In summary, I am seeing a defensive position taken today by bond traders leaving interest rates higher day over day.  If multi-billion dollar bond traders are hedging their bets and taking an approach that rates will rise, I would think we should follow suit.  Locking to protect what is still available is the only intelligent action today.  Speculating that rates will improve is not a losers bet, but certainly one that is clearly too risky today.  Depending on your time line to close you can potentially play the game, but loans closing inside of 30 days should be taking defensive action today and locking.