Mortgage Rates Improving - But Still in the Tight Range

After a short week last week where the market was pretty much tame, the mortgage bonds have opened up in positive territory so far this morning and have been getting a little bit better following the downturn we saw last Friday before the close.

There are three events that have the greatest potential to move mortgage rates this week. The first one is ISM Non-Manufacturing (Services) which accounts for about 80% of our economic activity. Last week's ISM Manufacturing report was weaker than expected and came in below the important 50.0 level but bonds largely held off any reaction as it’s just too small of a piece of the pie (about 20%). This morning, the larger piece of the pie was much weaker than expected (51.4 vs est of 55.7). This still showed a monthly expansion but it was a big miss and has caused MBS to rally to start the week.

The second is from the Feds as Wednesday's release of their Beige Book which is compiled specifically to be used in the next FOMC Meeting. We will see what all 12 districts are reporting for growth and sentiment.  The last piece will come from ECB President Mario Draghi, as he will not only announce their latest policy statement but also hold a live press conference.

The markets are trying to figure out how they stay on target with their monthly bond purchases as they have basically maxed out the types of bonds that they can purchase unless they make some rule changes. Those rule changes (if any) are what will drive the markets.

We continue to expect mortgage rates to trend in a very tight channel. As far as planned economic news, there really is not anything with enough gravity to push mortgage rates significantly up or down. Having said that, mortgage rates have basically remained unchanged since the end of July. When rates push out of this channel, we need to be aware of which way it heads.