Mortgage Rates Increase with More Volatility

Mortgage rates have been volatile recently, with 3 out of the past 5 business days seeing much-bigger-than-average moves.  After improving nicely yesterday, rates rose quickly today by nearly the same amount. The stock market rallied as the dollar a little stronger.  Incoming (likely) Treasury Secretary Steve Mnuchin is helping provide headwinds as he noted that the dollar was too strong yesterday, reversing his strong dollar comments yesterday.  The bond and mortgage markets improved yesterday, today a complete reversal from yesterday. Interest rates are essentially flat-lined on the 10yr and mortgage rates for the last three weeks. Trump this morning re-ignited with two executive actions that would advance construction of the Keystone XL and Dakota Access pipelines. He wants more oil companies to have more freedom to expand infrastructure and transportation efficiency. His condition, use American steel.

Trump met auto makers chiding for more US plants.  Auto makers however have an issue, not willing to invest billions until the trade issues are farther down the line with negotiations on trade. Trump withdrew the US from the TPP trade agreement yesterday, the next step is Nafta.

After a pause the equity markets since mid-December it looks ready to continue to improve. NASDAQ saw another new high and the DJIA is approaching 20K that will likely fall in the next day or two. Lower taxes, Trump meetings, and the renewed construction of the two pipelines that were stopped by the previous administration. Fiscal spending, but that will not impact much this year nevertheless it is on the Trump agenda. The Fed poised to increase rates, a momentary plus for stocks as the Fed gets behind the economic growth and increasing inflation. And ObamaCare redo also adding to the positive momentary views. Stock valuations still at high levels but investors betting on strong growth and not giving valuations their normal due.

Treasury sold $26B of 2yr notes this afternoon, but the auction was not well bid.

Investors smelling another run in equity markets - the 10yr note cannot hold any improvements and have huge resistance at 2.35% (2.47% today, up to where it started yesterday)  MBS prices down 36BPS after increasing the same yesterday.  No mas - we tried a couple of times to hold  but barely escaped - not anymore until the 10yr proves it has the momentum to drop below 2.35% - until then it is best to keep locked.

In summary, days like today have become all too common for us rate watchers.  Fortunately we are still in the broader range for rates, technically our little "safe haven".  Conceptually as we get to the support level (the top of the range) the strategy would be to float in anticipation of reversal within the range and lock as we approach the resistance (the bottom of the range). Unfortunately, the overall volatility and uncertainty remains too high for me to risk floating and the range crumbles.  I recommend locking into the weakness as a defensive play for all loans with a 30 day window to close.