Mortgage Rates Subside After Five Days

Mortgage rates finally found some stability today after moving up for the past five days.  In fact, some are saying that we may have established a new ceiling for the time being as once the 10yr hit 2.50%, we sort of hit a brick wall.

Yesterday there was another new all-time high for the DJIA, but today there was no follow-through.  Even with robust numbers with the housing data and the Philadelphia Fed Business index, these key reports were on the face bullish for the economy yet interest rates declined across the curve. 

I have been concerned and expecting a retracement in the stock market - that interest has not increased much while US and global stock markets have been on fire, and that the Fed is very likely to increase the FF rate at the March meeting suggests investors continue to hold insurance positions in US treasuries. The stock market today ended lower but a minor pullback.  Is this the beginning of the long-awaited correction in stocks? Too early to make that assumption but it is not out of the range of possibility. The Trump rally is extremely long in the tooth now. Investors and trader’s way too optimistic about the numerous announced Trump plans now, it will not take much to send stock indexes down in a major retracement. That said one cannot ignore the strength that exists in equity markets. If (when that begins money will flow into treasuries and prices higher in the MBS markets.

The dollar supported the bond market today, lower against the basket of 16 currencies. The dollar explosion, like the stock market is also technically overbought.

Trump said today in his press conference that he has inherited a “mess”. Recall when Obama was elected in 2008 he too voiced that he had inherited a “mess” - the financial sector near collapse, economy declining and growth for his first two years nonexistent and when asked he always said he inherited a mess. Must be what new presidents do to explain why things are not going their way in the early days in office. Recent concerns from news reports defines the Trump administration in “chaos”.  Of course, Trump denied this and said this administration is running like a “fine-tuned machine”. 

In summary, bonds bounced back today, posting gains despite upbeat economic data.  It is reassuring to step back from yesterday's foray towards the top of recent rate ranges.  Treasury yields are now squarely mid-range at 2.45%.  Be careful if you want to float.