Mortgage Rates a Little Better This Morning

Mortgage rates, following the treasury market, opened better this morning.  Markets started the last week before Christmas on a subdued note, with stock moves muted and government bonds stabilizing after steep declines. The volatility within a narrow range continues. This week begins the end of the year holiday trading, as investors and traders usually back off strong positions as volumes begin to thin. No changes in the trends in stocks and bonds but a little less trading.  

There are not data points today, nothing tomorrow and Wednesday existing home sales. Thursday’s calendar has five key reports and Friday Nov new home sales. The dollar this morning weaker against the yen. Stronger against the euro on position adjustments into the year end, but the strong dollar will continue as the Fed increases rates while Japan and the EU continue to stimulate.  

So far at 10:00AM, the 10yr is at 2.56% with a lot of talk this morning that we are a state of inflection, were we might see either a pull back or it rise to 3.0%, as what most believe will be sometime by December 2017.  MBSs are a positive 25BPS since their open this morning.

It is holiday time -  sugar plums and egg nog. Two things I find interesting - with all attention on Trump there has been little, if any, reports on retail shopping and how consumers are spending. Usually this time of year the media and markets are laser focused on reports from retailers and surveys from consumers.  This year, I have not seen too much data or reports on this. The second interesting thing is how markets have bought wholeheartedly into the idea the Fed will increase the FF rates three times next year. Last year in December, the Fed told markets there would be four FF increases in 2016, we got one. This year the Fed and FOMC said three are coming. Yes, there is a difference this year with the Trump election and all he has said he would do and markets are not even hesitating - everyone is all in.

I doubt the Fed will do three increases, but I have been disagreeing with them for the past three years.  Prior to the December FOMC meeting last week markets were thinking only two moves. Two is what I expect, and I believe in the end what the Fed will do. Expect the Fed to wait now until at least June to make the next move. No one knows yet what Trump can do to increase wagers, grow inflation, lower taxes, and huge infrastructure spending. Markets though do not appear to care about the details, the time frames or the political hurdles that will have to be negotiated.

Right now, you may want to float, but I am taking these rates and telling folks that the volatility is too much to bear as we have seen to many shifts upward.  Some have missed the boat, and others are still hoping for a reversal.  I would love to see it, but it is very risky at this point.