Mortgage Rates Trending Better

Mortgage rates moved slightly lower today, or at least we will see that in tomorrow’s rates, after the FOMC statement came out.  Markets are already talking about the September meeting. Were there any significant gains in prices and rates after the statement? Yes, but some the day’s price gains and declines in yields began right after I published my morning report around 11:00AM.  While talking with clients, I kept one of my monitors open to the whole page and saw MBSs mover higher and the 10yr note yield dropping lower.  In this morning’s statement, I noted there would be a big move when the statement was released. After two weeks of very little changes in interest rates (the 10yr note traded between 1.59% and 1.56% 95% of the time) it was not a huge leap. It was inevitable. I also noted I did not know which way the move would happen. The 10yr dropped to 1.51% clearing the range and now likely will head even lower for a few sessions.

Tomorrow weekly jobless claims are expecting a small increase.  Treasury will resume this week’s auctions with $28B of 7yr notes. The 5yr yesterday was mediocre at best, look for better bidding on the 7yr.  Also significant tomorrow June US trade deficit.

The two-week range has broken to the downside (yields) today. The next resistance is at 1.46% and should be tested now. MBSs will move its resistance levels as well if the 10yr moves lower.  Some of the bearish positions are being lifted today, we expect more of it over the next few sessions. Crude oil continues to decline helping the inflation worries ease at the moment. Tomorrow the key is how the 7yr note auction goes, better demand will encourage more short-covering of bearish trades that had built in the bond market since the UK vote a month ago. Japan is expected to add more stimulus on Friday. The US stock indexes may be losing momentum, if the indexes come under selling pressure that would support the interest rate markets.

In summary, the Federal Reserve did not raise their overnight rate today, to no one's surprise.  Their statement was obtuse (as usual) but bond markets reacted positively.  Even though we are still in a tight range, we more than likely will see some nice price improvements in the morning.  In the big picture, even if this tight range stays, at least we are trending to the other side than what has happened gradually the last few weeks.  This certainly is an opportunity for floating borrowers to lock the next couple of days as rate sheets catch up with MBS prices.