Mortgage Rates Flat

Welcome back!  I hope you had a great Valentine's Day and enjoyed the long weekend.  The three biggest story lines that long bond traders are focusing on this week are: 1) Oil, 2) China back on line and 3) European Banks. Notice that none of the top three items that have the greatest probability of influencing your pricing are domestic items.

Yesterday equity markets in Europe Japan and China rallied with big gains. Mario Draghi said he was ready to add more stimulus at the ECB March meeting if he thinks market turmoil or low oil prices will weigh on his inflation gambit. China let the yuan increase, the biggest gain in years.  Saudi Arabia, Russia, Qatar and Venezuela said they would freeze production at the current levels, but to do it Iran and Iraq must also agree. Crude prices increased a little but once the news was digested the price backed off and now trading lower.

The futures early were not moving much, but did slip when they opened.  The Feb NY Fed Empire State manufacturing index was worse than expected. It was the 7th month in a row the index contracted. Later, we saw another report that was lower than anticipated when the February NAHB housing market index came in lower. 

At 11:00AM, we are seeing the stock market with positive gains for the day (the Dow is back above 16,000), the 10yr Treasury holding steady at 1.78%, and MBSs flat. Hence, we are not seeing much in mortgage rate changes.

Markets continue to pay attention to Europe’s large banks. Banks in the region have been under strong selling pressure recently. Europe’s banks are believed to not have enough capital to avoid serious problems if the economy in the region continues to soften. Since the fall of Lehman Brothers in September 2008, eight of Europe’s biggest banks have announced layoffs adding up to about 100,000 employees, paid $63B in legal penalties, and lost $420B in market value. In 2015, Deutsche Bank lost a record €6.8 billion ($7.6B).

From what I am seeing now, I would recommend locking in these price gains. The US stock and bond markets since the beginning of this year have been on a one way street - stock indexes falling, interest rates falling as investors realized that overall stock values were way overblown. Global economies also slowing drove money to safe treasuries. That is not likely to change, markets were technically over-extended and overdue for a retracement. That is where we are now. I continue to believe rates will decline from recent lows but as noted, the ride from here is going to be bumpy. Prices of stocks and lower prices for MBSs will continue for a few sessions, possibly longer. Presently I suggest staying flat -floating now has too much risk, markets have to take a breather.

If you decide to float, stay close to the trigger as the market is volatile.