Mortgage Rates Positive After Yellen's Speech

Mortgage rates moved decisively lower today, following a speech from Fed Chair Janet Yellen.  Janet Yellen slapped down some of the regional Fed presidents that have been making their case that interest rates should be increased soon.  She unlike those talking heads is concerned about the economic health of the global economies. “Given the risks to the outlook, I consider it appropriate for the committee to proceed cautiously in adjusting policy.” No time table for a rate increase she said. The next FOMC meeting is in April with no increases and likely there will be no increase at the June meeting.

She said the economy here in the US is providing a lift with consumer spending, and the housing markets.  On inflation she said the uplift to inflation was in her view reflects temporary factors rather than a sustained uptick in economic activity. In sum, she directly tossed the Feed hawks under the bus, although that analogy won’t be used. Nevertheless, that is one of the messages she made clear, the other; interest rates will stay low.

Treasury sold $34B of 5yr notes right in the middle of Yellen’s speech. Tomorrow at 7:15 ADP will report its private job numbers for March, expectations are for an increase of 203K. At 9:30 weekly crude oil inventories. At Noon, Treasury will auction $28B of 7yr notes.

Now that Yellen has straightened out those hawks at the Fed, and now we do not expect another interest rate increase for many months, and possibly not another one this year. Her remarks sent the 10yr yield below that 1.85% resistance I had tattooed on my forehead the last couple of weeks. Now all of the momentum oscillators have turned positive and the models bullish with the 10yr dropping to 1.81%. It is never easy to traded however, the next hurdle is Friday’s March employment data. I expect interest rates for mortgages will improve now. Another thing that will help the bond market, I believe the US stock market is moving close to a selling bout, not sure of the timing because the equity markets live on emotions and investors cannot find another place to invest. Mix in the increasing concerns about global terrorism and the outlook looks good for interest rates. A word of caution though, at these low levels of rates investors and traders will remain edgy.

In summary, bonds rallied impressively today, as Fed Chairwoman Yellen's comments on global economic weakness boosted bond demand. We are well under 1.85% on treasury yields, and both treasuries and MBS are near late February's levels, an impressive improvement for a 2-day period. I am not in a big hurry to lock, as we still do not have enough confirmation to call this a return to lower rates yet, but it is a nice start! Let us see what tomorrow brings.