Mortgage Rates Interesting Week

Mortgages rates had an interesting week as we are now at our best levels in the last two weeks.  The 10yr note dropped, MBSs had a large net gain for the week, and the fears of higher rates at least have been put on hold for the time being.  The biggest move this week though was the decline in the US dollar.

The FOMC, as expected, kept rates unchanged but also one of the comments in the minutes said the Fed was in no hurry to increase rates, contrary to what most economists and Wall Street firms believe - and they still do believe it regardless of what the Fed may think. Most of the data reported this week was weaker than the economists’ forecasts, hope always trumps reality when it comes to forecasts. Q1 always a weak quarter.  Now one month into Q2 the data, while always critical, takes on even more seriousness.

Overall, if one looks at this week as bad-news - good-news deal, then the data like we had should tell the Fed it has no reason whatever to tighten, not for pre-emptive insurance, not for anything. If we are lucky and patient, continuing low rates will help the world’s most adaptable economy gradually enter a real recovery.

Next week begins the second month of Q2, which starts off with three very key April data points plus a few left over March reports. The elephant is the April employment report next Friday, before then both April ISM indexes (manufacturing and services). The economic calendar next week has data every day but Tuesday. And next week, after Fed officials were refrained from speaking the past 10 days they are back in abundance.  It was certainly nice this week to not have to listen to them pontificate their views that most times is like left over hash. Two on Monday, two on Tuesday, one on Wednesday, seven on Thursday (symposium in San Francisco) talk about confusion, and a rest period on Friday.

Still the technicals have not reaped an outright buy signal in the bond and mortgage markets, but they are close.  A number of indicators have turned positive.  As long as MBS prices improve through the day as they have on Wednesday, Thursday and today the risk is much less entering into the following session morning pricing – so go ahead a cautiously float. To turn the totality of the technical work all bullish we need a close below 1.80% on the 10yr note.  No matter how you look at it, if you locked, you cannot beat the price as we are at lows not seen for nearly three years.  If you are floating, be careful!

In summary, the 10yr and MBSs ended at the week's best levels.  The big question is whether market momentum carries into next week, which ends with April's NFP employment situation report on Friday.  I love the fact we posted 3 consecutive days of gains, let's shoot for more.  Floating borrowers need to have clear goals for their loans - if pricing worsens, when do you jump off your float boat?  Dare I say it again, “Pigs Get Fat, Hogs Get Slaughtered!”