Mortgage Rates Have a Good Day

Mortgage rates had a good day for a change after a tumultuous three weeks of a gradual increase that seemed like it would not stop.  Prices increased this afternoon on one of the strongest 7yr note auctions in over 2 years since February 2014. The demand after the decline in rates yesterday adds more potential strength to the MBS and treasury markets, although we are still not quite out of danger. I noted this morning that the 10yr had to hold yesterday’s gains today and tomorrow -  we got through today, if the 10yr holds gains tomorrow, then the various technical will become more positive.

The stock market was hit hard this afternoon adding to the improvement in interest rates. If that continues overnight and tomorrow, we can expect interest rates will fall also. Mortgage markets were looking better by the minute late this afternoon.

Q1 GDP +0.5% was a little weaker than the consensus of +0.7%, but the price component increased 0.7% a little hotter than 0.5% thought. Crude oil and most all other commodities were weak for most of Q1 lowering the inflation threshold but the price component higher than expectations, something that will not go unnoticed by the Fed.

Q1 is behind us and the first month of Q2 ends tomorrow. Q1 was soft as is the case most of the time in the first quarter of the calendar year - now focus turns to April data points that will begin flowing tomorrow with the April Chicago purchasing managers index.   Markets overall still thinking a June rate increase but I believe that to be highly unlikely at this time.

In summary, whether or not the good times keep rolling remains to be seen, but this is certainly the most hopeful the situation has looked in since rates began moving higher on April 8th.  The most conservative strategy would be to lock in the gains seen over the past 2 days, but risk takers could benefit from floating as long as they accept the risk of being forced to lock a slightly higher rate if rates head higher over the next few business days.  In any event, floaters should set a line in the sand to act as a stop-loss and resolve to lock at that level if rates move higher.