Mortgage Rates Slide on Weaker than Expected GDP Numbers

Mortgage rates are slightly better this morning.  The MBS market improved by +15 bps yesterday. This was may've been enough to improve mortgage rates or fees.   The market experienced moderate volatility yesterday.

The Q1 Employment Cost Index matched market expectations and showed a nice gain of 0.6%.

However, the big surprise came from the news regarding GDP.  The weaker than expected headline reading is positive for MBS but this report is actually a mixed bag. The 2nd QTR GDP reading came in at 1.2% vs estimates that ranged from 2.2% to 2.6%. So, on the surface, this is much weaker data. But it will be revised 3 more times. Also, some of the internals look good with Consumer Spending Increasing 4.8%. The GDP data was pushed lower by a big drawn down in Inventories but actually is a positive for the economy as now those inventories need to replenished (manufactured).

We saw that the Price Index jumped higher than anticipated.  This increase was largely due to an increase in oil prices during that period. Consumer Sentiment.

Offsetting the headlines consumer spending in the quarter increased. Personal consumption, which accounts for more 70% of economic output, expanded at a 4.2% rate, the best gain since late 2014. Spending on goods advanced 6.8%. Spending on services climbed 3%. Business spending is where the drag was in the quarter, declining 2.2% the 3rd consecutive decline.

Overnight the BofJ did not add stimulus that was widely expected. Treasuries were trading modestly lower this morning after the Bank of Japan failed to deliver the much hyped "helicopter money" last night. The central bank did increase some of unconventional monetary easing and said that it stood ready to ease more.

The July Chicago purchasing managers index and the U. of Michigan consumer sentiment index came in close to expectations.  Crude oil is still declining, down $0.45 this morning to $40.69 and now down about 20% since early June.

There has not been much reaction to this data as I would have hoped, as at 11:30AM the 10yr is at 1.49% and the MBS are again in positive territory.  I do believe it may be time to consider to float, at least for today, but if you like the reaction and the rate, lock it in now and get an early start on your weekend.