Mortgage Rates Stuck

Mortgage rates are just off their three-year lows, but are stuck in a holding pattern as both the bond and mortgage markets have had very little movement the last week. The bond market ignores weak economic data of which we have had so far this week. Today weekly claims increased 20K on expectations of a decline, last Friday April job gains less than expected, overall Q1 earnings and forward guidance weak. Last week both April ISM indexes were slightly better than expectations. The Fed not likely to increase rates in June, but the present view has swung more toward the probability that a move may happen, traders in FF futures still bet against a June move but as long as the fear factor hangs over markets the bond and mortgage markets are locked in an extremely tight range. The inflation levels here and globally remain well under the global central banks are trying to achieve.

The last two weeks reminds of that comic strip Bizarro. Over the last 10 days the bellwether 10yr Treasury note that drives MBS prices has been in a very narrow 4BPS range – stuck as I put it above.

Yesterday the demand for the $23B of new 10yr notes was off the charts, the best foreign buying ever.  Today I fully expected another strong demand for the $15B of new 30yr bonds that did not happen.   The auction did not come close to the strength of yesterday’s 10yr.

Three Fed officials today, all three voters. I am not going to mention what they said as Yellen now is running the ship and all this is the term I call Fedspeak. 

Tomorrow finally this week two key data points - April retail sales and April PPI, along with the mid-month May U. of Michigan consumer sentiment index.

No change in the technical reads, still flat with very slight bias to the bullish side but so minor any movement lower in prices from these levels will turn us back to bearish. The 10yr in narrow rate range for 7 sessions. I have been floating a small position and continued today but – I am a bit leery.  Presently the positions we hold are unchanged since last Friday.

In summary, there has been plenty of negative economic data circulating the global market radar, but not enough to push bond yields lower.  This may be a concern for some to consider locking as a defense play, but the trend is still intact, albeit in consolidation mode.  Floating is still a viable approach, but if you have a closing in the horizon of the next 15 days, locking may be the way to go.