Mortgage Rates Continue Lower

Mortgage rates kept moving lower today as global financial markets remain in distress.  Truthfully, with all the volatility out there, the roller coaster rides that the MBSs were riding today, the range was set that never deviated on what I talked about this morning on my website. 

Given the timing, it would seem that financial markets are eager to hear from Fed Chair Janet Yellen, who delivers her semi-annual congressional testimony over the next 2 days.  What will she say, how will she frame the current situation with interest rates falling, the US and global markets dropping, and how will the Fed deal with it? Lots of questions for her to address. The Fed once again has missed the reality of how the global economies directly impact the US. I appreciate the Federal Reserve and how the bank handled what could have been a global depression in 2008, but recently it seems the Fed is adrift. Two months ago, just 9 weeks; the Fed told the world it would increase the FF rate four more times in 2016. Now it appears the Fed won’t be able to meet its pronouncement. Janet Yellen is definitely on the hot seat tomorrow and Thursday.

Crude oil, recently thought to be about to increase, declined again Tuesday, hitting the lowest settlement since 2003. Crude these days is seen as leading all other industrial commodities lower - not sure I totally accept that on its face but these days it is what it is. Crude prices do impact the inflation outlook as long as it drags other commodities lower.

Last week tech and dot.com stocks were ripped apart, this week investors turned to financial stocks, especially bank stocks. A rotation from one sector to another as global growth, the fear of deflation and mass confusion within global central banks. Large US banks are in good shape, but making money this year is not likely to be easy - thus bank stocks under pressure. In Europe though the banking sector is not as grounded as in the US. The Fed is telling banks to be prepared for negative interest rates - what a flip in outlook! According to the Fed comment the bank stress tests will include negative rates scenario.

Treasury sold $24B of 3yr notes this afternoon; it was not a good auction.  Tomorrow we have the 10yr up. 

In summary, interest rates have had a very nice move lower since the beginning of the year, and we continue to expect rates will continue lower. With Yellen tomorrow and some easing this afternoon we expect prices will be weaker tomorrow. Otherwise nothing fundamentally has changed.  Japan in a rout today, China still celebrating the year of the Monkey, a 10yr note auction tomorrow, Europe’s banks being slammed. Every testimony by a Fed chair is important to markets - after what has occurred since the December FOMC meeting Janet Yellen will have her hands full.  How long can she ignore the reality?  I do not know how long this rally will last, but I do see it going further and everyone should take a look at what they have a hop on the wagon for the ride.