Mortgage Rates Steady - For How Long?

Mortgage rates managed to hold steady today despite weakness in the underlying bond markets.  That means even though the rates seemed to mirror the previous day’s rates, they did have some push by the trading of the MBSs today that would tend to believe that they might be going up in the next few days. 

It is beginning to look like the run might be over for a while in the bond and mortgage markets.  Many indicators pointed for me to call a number of my clients today to consider locking as I do not feel that there will be any downturn to justify floating for the next 15 or so days.   There were stories today that Russia and the Saudis were going to reduce oil supplies but no confirmation and may be just a story that validates the current increase in oil prices. Oil now at its highest price going back to last November. Major oil producers are scheduled to meet this weekend in Qatar. The stock markets have been looking heavy recently, today with oil hitting new recent highs the key indexes did not buckle this afternoon as was the case the last few sessions.

Nothing really has changed, as the US and global economies still look soft based on data. The IMF is lowering the US and global outlook, the World Bank is sending warnings. Markets do not make straight line moves, as I noted yesterday the bond and mortgage markets are subject this week to selling with a number of economic releases, and Treasury auctions. Grant you that the wider outlook remains bullish for lower interest rates but obviously it depends on events and data. Respect for daily movement is critical and of course the technical.  The 10yr hit a key resistance level at 1.70% last week, a level I thought may stop the rally. It has, for now. Interest rates globally all increasing now. The German 10yr bund doubled its yield in the last few days.

This afternoon Treasury sold $24B of 3yr notes, the auction met with decent demand. Tomorrow very key data starts off with March retail sales and March PPI.  A little later we will have February business inventories, which is a key data point for Q1 GDP. At Noon, the Treasury will auction $20B of 10yr notes, re-opening the 10yr issued in Feb. The auction directly impacts MBS prices. At 1:00 the Fed’s Beige Book, the staff report from the 12 Fed districts.

The bond and mortgage markets are very data dependent following the Fed’s focus on data. Now markets may drift a little higher in the near term but our outlook for lower rates this year is still intact. The oil producers meeting this weekend should keep oil from declining and support equity markets somewhat. If oil continues to move higher taking gasoline higher eventually we will be worrying about the consumer impact on higher prices. Many of the millions of auto and truck sales the last two years were for tucks and SUVs that use a lot of fuel.

It was a good run, we made a lot of gains, but it may be over - temporarily. Earnings reports from Q1, oil price and the IMF meeting this weekend all will keep prices from increasing. The only caveat, the key data over the rest of this week - weaker than expected retail sales tomorrow could jolt markets back to a less near term negative outlook.

In summary, bond markets slid today, opening slightly lower before losing ground steadily as the day progressed.  While there was not much change from the banks today, we might see some tomorrow.  We are still within recent ranges, which is encouraging.  If treasury yields break 1.81% convincingly (currently at 1.78%), our trend towards lower rates may end.  For now, I am watching this very carefully, and floating borrowers may want to discuss the merits of locking soon than later, particularly if the possibility of rates rising keeps them awake at night or affects their borrowing ability.