Mortgage Rates Sharply Higher Today

Mortgage rates moved sharply higher today, as we saw more selling in the bond market this morning after comments from the Fed’s Harker (Philadelphia) and Kaplan (Dallas) yesterday, and coupled that with President Trump’s speech last night and how it was perceived.  This morning more price decline in MBSs and the 10yr raising its yield to 2.46%.

The stock market went wild today after last night’s speech by Trump. Reiterated his plan for infrastructure spending of $1T using government and private investment, as promised a tax plan to cut corporate and personal taxes and de-regulations. Nothing last night was new news expect maybe his demeanor and statesman-like poise. Overbought technically prior today but investors did not blink.  If you heard, Warren Buffett stated on Squawk Box Monday that the stock levels were not over-valued. Today a feast of buying. The 10yr note yield still within a 20BPS range that has held it since the beginning of the year and unchanged from the end of 2016. Mortgage rates only fractionally above where they were in early January.

More push higher with the Fed poised to increase rates in two weeks, and I am now leaning that way myself.  Traditional thinking used to be that as interest rates increase it is a drag on stock levels - not these days, that the Fed and its many officials have been flashing warnings of higher rates the stock market sees that as a positive now. The idea - if the Fed is so worried that the economy is heating up and inflation is an increasing concern, then it must be another roaring buy signal to dive head first into the pool.

Major bets being laid now that the US and global economies will pick up a lot of speed this year.  No one looking backward but data has not been all good.  I am not trying to argue against the heavy optimism that presently exists, but putting some perspective out there. I have been leery of the climb in the stock market recently.  Still are, but I have been wrong.  Interest rates though, while technically bearish on the models, have been stable. Mortgage rates have not increased much.  There used to be a mantra that stocks climb on the wall of worry, not these days; it is all out buying with no concerns.

In summary, if you missed the opportunity to lock yesterday, today’s rates may scare you a bit as sometimes the banks over react when bonds are selling off - and selling off quickly - since they do not know when the selling will stop.  Based on that, I think floating for now is worth the risk.  If bonds can just hold the current levels, I would not be surprised to see some banks give back what they took in the last few days.