Mortgage Rates Slightly Worse This Morning

Mortgage rates are slightly worse this morning as we are seeing more selling this morning; with increasing talk about more stimulus coming. The dollar weaker against the Pound and euro currency but stronger against the yen. The Pound rose for a third day as Home Secretary Theresa May prepared to take over as the U.K.’s next prime minister. Global stock markets recovering and about back to where they were trading prior to the UK exit vote.

The NFIB Index was stronger than expected and a nice improvement over May's number. This was the third straight month of gains in this index. The May Job Openings and Labor Turnover Survey showed that even though we have been adding lots of jobs, there are a lot that are still unfilled. The April reading was revised from 5.788M to 5.845M and the May reading hit 5.5M.

At Noon, Treasury will sell $20B of 10yr notes. Yesterday’s 3yr auction was soft and did not get much demand. The 10 and 30 have rallied hard since the UK vote on 6/23, yesterday and today so far a big reversal in thinking as more stimulus talk emerges from Japan and Europe. The demand for the 10yr this afternoon is important, a weak auction will add to the current selling of treasuries and MBSs, a strong auction should help support the rate markets.

St. Louis Fed President James Bullard (a voting member) said he will stick with his view that only a single interest rate increase will be needed for the foreseeable future, despite the strong rebound in U.S. job growth in June.

There are still a number of us that feel that lower interest rates are still ahead - how far ahead and how high the 10yr will travel though is the unknown. The flip-flop we are witnessing now clearly demonstrates the uncertainty markets face, whether stocks or bonds. The quick change in sentiment should be considered but in context. The main takeaway now is the realization that whether bullish interest rates or equities there is not much confidence in either. The rapid change in sentiment like this is indicative of uncertainty. That said I have to respect the current situation and the bond and mortgage markets are under pressure presently - how long this phase will last is key but we remain confident that once this retracement is over the rush back to safety and risk off will re-emerge. For now rates are edging up a little but at some level US 10s and 30s will look enticing once again.

Floating now is dangerous and this afternoon’s 10yr Auction may provide support if demand is strong.  If you are continuing to float, do so with extreme caution.