Mortgage Rates Hold Their Ground

Mortgage rates held their ground today, keeping them near the lowest levels in more than 2 months.  There were no major economic reports, but financial markets were highly active nonetheless.  This morning after some calm in Chinese markets US indexes opened better as crude oil went up $1.00. It did not last long before sellers continued to pound stocks lower. Crude oil recovered all of the initial gains to end the day about unchanged.

The Fed’s Beige Book held more of the same optimism that is sure to be erroneous as the calendar moves forward. The Fed's Beige Book for January said that economic activity increased in 9 out of the 12 Federal Reserve regions and that the outlook for future growth remained mostly positive.

As I mentioned this morning, a number of Fed Presidents were out on the speaking trail today.  Chicago Fed President Evans (non-FOMC voter) said today that the Fed should hike only two or three times this year. He is one of the most dovish members of the FOMC and does not vote so his comments have had little effect, and rightly so. With each comment from any Fed official they lose more credibility.

The Treasury sold $21B of the re-opened 10yr note this afternoon, resulting in the strongest bid/cover since December 2014.  Again, like yesterday, foreign buyers dominated the auction.  Tomorrow we get weekly claims which really has not had much of an effect on the market.  Also we will get the December export numbers, which are expecting a negative number.  Hello Fed and Janet, where’s the inflation?  One more opportunity for foreign investors to take down more US debt tomorrow with $13B of 30yr bonds auctioned at Noon.  Techs are all bullish, and this might be the best opportunity to just wait and float.

In summary, the rates rally continues.   Tomorrow we have our final auction of the week.  Once all that supply is absorbed by the market, it is pretty common for rates to rally further.  If you can tolerate the risk, I would continue to float to find out how much further rates might rally.  The markets are spooked which is good for rates and bad for stocks.