Mortgage Rates Get Retracement in the Markets

Mortgage rates finally got the retracement we have been waiting for today, after consolidating last week. The MBS prices rallying the 10yr note yield down to 2.32% after touching last week above 2.43%. The recent selling has been excessive as I have noted many times here. The stock market equally over done but today only a minor pull back. It does not change the longer outlook though, as I still expect interest rates will increase but since the election results the reaction has not only been severe but also not backed with anything but wild speculation that Trump will turn the entire economy around in a matter of months. Nothing could be more miss-placed - even if Trump can work a tax package through Congress, increase infrastructure spending and re-negotiate trade pacts to benefit the US it will take time and it will not be as smooth sailing as this honeymoon appears.

Tomorrow begins a run of key US economic reports that will culminate with the November employment report on Friday. While the data is, key markets are unreasonably focused on Trump. Now here is a question - does the stock market read the situation correctly? It did not on the Brexit vote, and it did not on the Trump victory. The stock market is vulnerable now and the bond market stands to benefit when equity markets wake up. Valuations of stocks excessive and based on current and near term economic outlooks has about maxed out the recent rally. One thing I am certain of is that Isaac Newton's first law of motion that what goes up must come down is not been repealed as yet.

Tomorrow we get the preliminary Q3 GDP report and it is expected to show Q3 growth up 3.1%, revised higher than the report last month.  November consumer confidence index and the Case/Shiller 20 city home price index will be coming out as well.

Currently I expect MBS conventional mortgage prices have a good shot to increase.  The 10yr note yield should move lower to 2.20% in this retracement. Those are technical projections. Fundamentally much depends how markets settle and valuate where they are now - overdone but keep in mind the larger trend now is higher equity markets and higher interest rates.

In summary, bond pricing improved to a point where we saw some better pricing today.  It maybe too early to get to excited as there is plenty of data yet to come out this week, as the first week of the month is always very volatile surrounding the Jobs Report. I still favor locking sooner than later unless you really like to gamble, then this rally might be just what you have been waiting for.