Mortgage Rates Testing Thresholds

Mortgage rates continued farther into to the highest levels since early February today.  The current territory is important as this point has been the high point that has been pushed – but not crossed in recent months.  MBS prices opened weaker, and stayed that way with very little movement all day. The 10yr note yield is up 2BPS after increasing 9BPS yesterday. Stock indexes not much changed. February ADP jobs report was better than expectations, but January was revised lower, so hence, about what was expected the last two months.

Tomorrow there are key data points to digest prior to Friday’s employment report. Weekly jobless claims are not much of a factor the last couple of months, staying in a tight range.  Q4 productivity and Q4 unit labor costs revisions will come out at 7:30AM, with January factory orders out at 9:00AM, another key economic measurement.  At the same time, the most important of all the key data tomorrow is the February ISM services sector index, which is still over 50 but backing downward.

Inflation, dormant for years, may be inching higher. Janet Yellen has been saying it would, but I have not seen it as much. Comments and reports recently are a stumbling block for lower interest rates at the long end of the curve (mortgage rates). Personal income, Global inflation rates, and the annual rate of inflation have all been keys.

These inflation reports and data are still circumstantial as far as I am concerned but each one heightens the fear in the interest rate markets and must not be ignored. Then of course, crude oil is increasing, and that is the key for OECDs revisions - however crude was increasing all through December. No inflation in our outlook but the bond market is nervous for the moment.

In summary, the support on the 10yr at 1.84% is holding but is being tested.  Following the strategy of float the highs, lock the lows, I continue to favor floating. As long as that support level holds, I would float and look to lock on the next dip. However, if that support breaks, rates could rise quickly so only float if you can afford to be wrong.