Mortgage Rates Lower – But Not Much Yet

Mortgage rates moved lower today, but the amount was not only smaller than underlying market movement suggested, it also varied widely from the banks that give us their rates. I decided to float this morning and wanted to know – did you? It was a solid reason to do so, the 10yr at 2.00% its technical resistance and I knew I could take care of my clients prior to any re-pricing if necessary.  The initial reaction to the Fed’s decision sent MBS prices up 58BPS from morning pricing and the 10yr note down to 1.92% just as fast. The initial reaction pushed stock indexes higher but not much.

The Fed made a critical switch today, finally coming around to the possible negative repercussions from global weakness and somewhat backed off concerns about inflation. The Fed now wants two rate increases this year, down from four hikes it said at the December FOMC meeting. Fed officials signaled that global economic and financial developments continue to pose risks to the U.S. economic growth, even though recent data have pointed to resilience here. While the Fed says two rate increases that is not cast in stone - December said four but now with the Fed more concerned about the potential negative impact from slowing global growth.

Stocks improved today but not the kind of reactions usually seen when the Fed makes a shift. The bond market improved but also not as much movement as we might have expected. Tomorrow we have weekly jobless claims, the March Philadelphia Fed business index, and the February leading economic indicators. 

A very nice bounce today in the bond market but it really did not change the technical outlook at this time.  I am still bearish as I would like to see the 10yr note yield to drop below 1.85% to change the technicals (1.92% now). The most significant takeaway today, the Fed appears to be willing to let inflation edge higher without panicking.

In summary, the Fed decided to not raise rates today which was a widely expected decision and no cause for celebration. What we may be able to celebrate is that Fed expectations for the total number of rate hikes this year was revised lower to two from four. In addition to that Fed members revised their rate expectations for 2017 and 2018 lower as well. All of this bode well for rates. The Fed seems to be lowering expectations for the pace of rate hikes which many think is a more accurate reflection of current global economic conditions. Mortgage securities immediately improved on the announcement today. I am moving to a "cautiously floating" sentiment for borrowers with some risk tolerance as I think this could be a good time to do such, as I see this that the market may need a little time to digest this news and rates were at their highest level in slightly over a month today.