Mortgage Rates See Improvement

Mortgage rates moved lower today following some changes we have seen in the bond markets.  The article today in the WSJ and the well-received Treasury auction indicated strong investor demand in the bond market (higher demand for bonds = lower rates).

The DJIA and the other indexes saw some selling today. I was beginning to believe stocks would never fall back. Nothing significant but 20K is very unlikely this year. Investors and traders putting it to rest now. The decline in stock indexes sent treasuries and MBS prices up and yields down. 10yr yield had its largest daily move since 12/14, down to 2.51% and MBS prices up 48 bps. The run up in stocks is not over yet but between now and the inauguration there is likely to be more two-way trading.

Treasury sold $34B of 5yr notes this afternoon.  Adding to today’s rally the auction was good. Tomorrow another session with little data, Weekly jobless claims, November US trade deficit, and the Treasury will finish this week’s borrowing with $28B of 7yr notes.

Thin trading and traders now believing 20K will not happen in 2016.  There is no change in the beliefs that stocks are going to go higher next year - the change may be, as I have noted here, markets will not know how long it will take for Congress and Trump to get moving. The recent excitement, as several us have been concerned with, should ebb. Since the election, it has been nothing less than a feeding frenzy at the beach with sea gulls gathering.  This must slow down and if that happens look for money to move back into treasuries for a while.

In summary, even though we have seen some nice improvements in bond markets this afternoon, we need to wait for the second week of January for any real trading confirmation.  Rates MIGHT be reluctant to go higher from here, but it is yet to be seen. I would lock in to play it safe until we see a change in momentum, until that point I believe defense is the only option. If you want to play the risk and understand the outcomes, then float with extreme caution.