Mortgage Rates Showing Little Movement

Mortgage rates were steady but did move slightly lower today.  However, even with the slight movement, rates are still fairly close to 4-month highs.  After rising sharply in the first half of the month, rates have leveled-off this week. 

The Fed released the Beige Book this afternoon. As usual recently the consensus in the Book was employment increasing and economic growth slow but improving. Reports from the twelve Federal Reserve Districts suggest national economic activity continued to expand from late August to early October. Most Districts indicated a modest or moderate pace of expansion; however, the New York District reported no change in overall activity. Compared with the previous report, the pace of growth improved in the St. Louis, Kansas City, and Dallas Districts. Outlooks were mostly positive, with growth expected to continue at a slight to moderate pace in several Districts. Manufacturing activity was mixed, and the strong dollar continued to dampen exports. Most regions saw an uptick in retail spending. Residential construction and real estate activity expanded further. Demand for business and consumer loans increased. Nothing surprising in the Book, nothing we haven’t heard many times recently from Fed officials. This could be happening for several reasons.  On the most basic level, rates (or any financial instrument for that matter) tend to take periodic breaks during broader directional trends.  In other words, if rates are rising consistently, in general, we might expect to see a few days where rates are sideways to slightly lower every now and then.   It's part of the natural ebb and flow of market movement.

Rates seem to be on hold in anticipation of tomorrow's potentially important announcement from the European Central Bank (ECB).  Even though US mortgage rates are most directly influenced by US mortgage-backed securities, global bond market volatility is only a few degrees of separation away.  Because any surprises from the ECB can easily cause big moves in global bond markets, US mortgage rates would certainly feel it.  At the moment, the concern is that the ECB will confirm recent rumors that it's close to announcing some sort of reduction in the pace of its asset purchases (which are a big part of the low rate environment in general).

The third debate at 8:00 this evening may very well cement the outcome of the election based on the polls. The 10yr still holding at its technical resistance at 1.74% today. MBS prices were slightly better than this morning. N0 change in the bearish outlook. Tomorrow morning may be volatile on initial reactions to the debate tonight.

In summary, charts are telling a tale of an uptrend in rates that is poised to continue.  Until I see something to disrupt this trend the intelligent decision is to lock in.  We are in the final stage of the presidential race, the final stretch toward the Fed's decision to potentially hike rates in December, and poised to find out if Europe is headed toward a taper tantrum.  Until these major milestones pass, I think most bond traders will be hesitant to get behind to a strong move to lower rates.  Their outlook is defensive.  Maybe we should be as well.