Mortgage Rates Moved Higher Today

Mortgage rates moved higher today, moving all the way to the highest levels we have seen since early February.  Treasuries and MBSs opened soft this morning and then continued to slip through the day. They proceeded to get even worse when the results of the Treasury’s $20B 10yr auction did not meet with much demand following the poor 3 yr auction yesterday and ahead of $12B of 30s auctioned tomorrow.

January wholesale inventories this morning increased better than anticipated. Crude was on a ride today, trading lower this morning but quickly flipped and moved higher the rest of the session. Crude oil inventories were up 3.88 mil barrels, higher than expectations of 3.0 mil but lower than 10.4 mil barrels the prior week. Russia officials said nothing significant has occurred regarding cutting or freezing output.  Nevertheless, crude increased and is on its way to $40.00 before any sellers may emerge. Global demand is expected to increase - Europe’s economies improving and the US outlook is seen to continue to expand. Crude still has influence over equity markets, higher prices drive stocks up, lower prices stocks down.

Treasury will try again tomorrow with $12B of 30yr bonds, re-opening the 30 issued last month. So far demand for US treasuries has been less than we would like but with ECB and the Fed looming buyers may be waiting. Tomorrow the only domestic data; weekly jobless claims, which have been tied in a narrow range now since late December. The big market event tomorrow, the ECB meeting and what the central bank will do with interest rates. There is speculation the ECB will cut its reserve rate again to -0.4% from -0.1%. Like the Fed, a lot will depend on Mario Draghi’s press conference following the meeting.

In summary, bonds lost some ground today but appear to be waiting to see what the ECB does tomorrow. Doesn’t seem to be a clear consensus on what Mario Draghi will say tomorrow so the float or not to float question is definitely a gamble. The trend has not been our friend since mid-February. Not floating today is rolling the dice that Super Mario comes out with a bond friendly message tomorrow morning. Remember hopium is not always the best strategy, especially if you are closing soon. Rates are still good. I am still leaning locking everything within 15 days but may push that to 30 if you cannot stomach the agitation.