Mortgage Rates Again Steady

Mortgage rates were steady again, marking the third straight business day with almost no rate movement following last week's quick spike higher.  In fact, we saw overall a very quiet day in both bonds and stocks with no serious data or Fed comments.

Tomorrow we get April new home sales, along with the Treasury will auction $26B of 2yr notes. Normally we do not pay too much attention to the sort end of the curve, but now with the Fed poised to begin increasing rates the demand and strength of the 2yr is important. Demand may be weak yet banks and large corporations need 2s.  Foreign (indirect bidders) still find some interest in 2s with global yields negative in Europe and Japan.

There is very little doubt now that markets will see a rate increase in June or July, but note July does not have a press conference from Yellen, there are some that believe the Fed won’t move rates unless there is a press conference. The chair of the Fed holds a press conference every other FOMC meeting. I do not think in this case it matters if the Fed were to hold off until July, always ways to get around it by simply making the move then announcing Yellen will hold a press conference. My point is July is as alive as June. The Fed may hold off with the British vote 8 days after the June FOMC meeting. It will not matter if the polls in Britain suggest the country will not vote to exit. Economic reports between now and June will direct the Fed’s decision.

Upon review of the pricing this morning, some banks are taking a conservative stance compared to what the markets are doling when prices increase. Most all of the models and other technicals are bearish.  Right now I would not be too optimistic.

In summary, since pricing took a beating following the FOMC minutes on Wednesday, bonds have managed to continue to move higher.  The rates I have seen are still lagging somewhat as banks tend to be slow to pass along improvements.   As long as you can tolerate and understand the risk, I would float to see if bonds can continue to move higher in price, lower in yield.