Mortgage Rates Moved Slightly Downward

Mortgage rates moved down modestly today, but it was enough to bring them to the lowest levels seen in exactly 3 months.  There were only a few days in October where rates were any lower and before that, you'd have to go all the way back to April to do any better. Treasuries and MBSs are still holding on as the 10yr continues to find resistance at 2.00% although this afternoon the yield dropped to 1.98% at one point after the 7yr note auction. Crude oil up again today on increased speculation OPEC led by the Saudis considering cut backs in output. Nothing yet directly from the Saudis but the rumors persist.

The equity market improved today ignoring the huge decline in December durable goods orders this morning.  Weekly claims returned to the levels that have kept claims tied close to 275K over the last few weeks. December pending home sales were weaker than expected, as NAR continues to blame low inventories for slower sales.  This afternoon Treasury sold $29B of 7yr notes.  Unlike the soft auction of 5s yesterday the 7 got very good bidding and resulted in treasuries and MBSs improving this afternoon.

Tomorrow Q4 advance GDP is expected to show a 0.9% growth in the quarter after Q3 grew 2.0%.  Q4 employment cost index also will be released with the GDP report, consensus is for costs to have increased 0.6%, the same as in Q3.  Even though we know we are seeing a dip, the number will not mean anything really until it is finalized in two months. Also the regional Chicago purchasing managers index will be out as well.

Treasuries, MBSs, stocks, and crude oil all at critical technical levels. Despite reaching these long term lows, risks remain.  Any time rates (or any financial metric, for that matter) consolidate in a sideways pattern, the risk is that the next move will be a bigger break outside the range, for better or worse.  With this particular sideways pattern lying on 3-month lows, it makes sense to guard against the bigger break higher, or at least to take advantage of what exists today. 

In summary, the 10yr has just dipped below 2%.  That is a positive sign, but at this time there certainly is not confirmation that a strong move lower is coming.  Rates are going to make a move drastically, in one way or another soon.  Right now cautiously float if longer than 15 days if you can stomach the agitation that turns. The trend has been our friend, so if the ride is bumpy, be prepared to stop and lock.