Mortgage Rates Got Better Today

Mortgage rates finally had something to cheer about as the day progresses after we saw three days of strong selling in the treasury markets end.  The 10yr note yield ended the day at 1.74% after pushing the threshold of the mid 1.8% range yesterday.   Through it all MBS prices declined but as in the rally MBS prices did not improve at the pace of treasuries, as the selling was not quite as severe. The stock market saw a huge bounce off the recent lows until today but today generally unchanged. The outlook for stock markets remains negative with more to come this year while the rate markets are likely to see lower yields. There has been no significant change to the weak growth in the US and very slow growth in global market outlooks.

Japan three weeks ago went negative on bank deposit rates, and it has not helped.  In fact, news reports are stating that this has added an additional fear layer in consumer thinking. In her recent testimony to Congress Janet Yellen commented that the Fed may also look into negative rates, but that thought though was jettisoned in the last few sessions with the rebound in equity markets. Nothing has changed, investors and big money still not enthused with the outlook.

Crude oil inventories increased 2.1 mil barrels last week to 504.1 million barrels. It was a new record build. Production of crude oil declined by 51,000 barrels a day in the week to 9.1 million barrels a day. Yesterday S&P cut Saudi Arabia’s credit rating to A- from A+, citing the “marked and lasting impact” of falling oil prices on the economy.

The Atlanta Fed released its GDPNow yesterday showing growth in Q1 at the moment expected up2.6% while economists are forecasting 2.1% growth. GDPNow and economists adjust outlooks based on each key economic report - there are many more to come before the end of March.  

Volatility in the equity market today cooled as it is taking a breather in this retracement phase. I am expecting another quiet session again tomorrow.  However, next week has a lot of key data.  January existing and new home sales, February consumer confidence, January durable goods orders and the preliminary Q4 GDP on Friday.

In summary, the correction and retracement is not over yet.  Today it was quiet and the bellwether 10yr note yield dropped to 1.72, and MBS prices increased 35BPS. I strongly suggested locking in all loans within the next 15 days as I did not want to lose any more than what we have gained thus far.  Although I expect lower interest rates this year, the amount of decline from these levels is not likely to lower 30yr fixed rate mortgages too much more from current levels.   And we have our Fed, the brains and drivers for confusion and uncertainty - fortunately the next FOMC meeting is not until March 15th, but the clock is ticking and will keep markets at high levels of volatility.