Mortgage Rates Up Ahead Of Yellen's Speech

Mortgage rates were at their lowest levels last week in more than two months, but the last few days we have seen some movement that has tipped them up a bit.  You have heard me talk about the range whereas they would hit the ceiling, then fall back to the floor, and then back up.  With that, we are currently in the middle and it seems like we are waiting to see which way we are going to move – all dependent on what is stated out there by the Feds (Mainly Yellen’s speech tomorrow) and the slew of housing data that we have been waiting for.

This morning, we saw the 10yr steady, of which it barely moved one way or another all day, but the MBSs were jumping back and forth, and ended the day at the same point when I delivered my report this morning - at a negative 22BPS.  The stock market pressured the mortgage bonds as they saw some nice gains again today with positive triple numbers with the Dow.

Tomorrow, we get our Valentine from Janet Yellen’s congressional testimony, which continues into Wednesday morning.  Although not an official Fed policy statement, these testimonies often serve as a venue for the Fed Chair to confirm, deny, or tweak prevailing policy expectations.  In other words, congress will almost certainly press Yellen for clarity on the Fed's rate hike outlook and other potential policy changes. 

Even though she would technically be talking about the Fed Funds Rate, her answers could cause volatility in longer-term rates (like mortgages).  Given that we're currently in the middle of the recent range, it's not hard to imagine a quick move to the higher end of that range if Yellen's comments are upbeat and supportive of a faster rate hike outlook.  Of course, she could take the other approach and strike a more cautious tone (in which case, rates might fall back to last week's lows, but as always, the point about big-ticket events is that they have the power to cause bigger movements in EITHER direction.  Bottom line: we don't know who will win the game - only that the stakes are higher.

In summary, we might go back to locking unless you have an above average appetite for risk.  The 10yr is at 2.42%, and this may be the new floor as we had hoped to get to 2.35%, which we touch briefly last week. In this case, we are at the lower end of the current range meaning there is more potential for pain than there is for pleasure.  Yellen is on deck tomorrow and the data deluge begins Wednesday.  Lingering in the background is the Feds eventual need to reduce the size of its MBS holdings.   I would bet Yellen’s words will be closely monitored tomorrow for hints of what’s to come on this topic.  It could be an interesting week.