Mortgage Rates Again Feeling Pressure

Early trade this morning at 11:00AM had MBS prices a little lower and the 10yr at 2.24%. The stock market is up at the DJIA is +120 and NASDAQ is up +41.  After some volatility yesterday, there seems to be some pressure against the mortgage bonds again today.

Two data points this morning had Weekly Claims were as expected, but the April Philadelphia Fed business index dropped more than anticipated. The index lower has had a minor support for the bond market but did not have any noticeable impact on stock indexes that held their gains prior to the weaker index.

More Fedspeak that goes round and round - this time from Robert. Kaplan, Dallas Fed. He remarked (again) that the Fed is still on track to move rates up two more times this year - unless the economy slows, he said the Fed has the flexibility to wait and see how the economy unfolds. "Three rate increases this year...is still a good baseline. If the economy develops a little more slowly, then we can do less than that and if the economy is a little stronger, we can do more than that," Kaplan said in an interview with Bloomberg TV. He affirmed that the Fed could take action to begin reducing the size of its $4.5 trillion balance sheet. The Fed has ramped up talk about its balance sheet recently. The take away from his interview - the Fed does not know what the economy will do this year and will be willing to hold off rate increases if necessary.

House Speaker Paul Ryan warning that any tax reform this year will not likely happen until late this year, if then. Tax reform has been hindered by the inability to pass a new health care bill. Tax reform was one of the foundations for the now stymied Trump stock market rally.

It’s almost an annual event the last eight years - a potential government shutdown if Congress does not increase the debt ceiling next week. No shutdown will occur, the debt ceiling will be increased. The Trump administration trying to get more money to build “The Wall” ($3B), more money for a bigger military. It is a gamble for Trump but at the end of the day there will not be a government shutdown.

The first of two French elections coming on Sunday – enough said on this.

The Fed currently waffling on its 2017 economic outlook with Fed officials talking the talk but suggesting it may not walk the walk. The extreme bullish economic outlook in the US and globally is wavering somewhat but still no major selling, just no new aggressive buying. Geo-political tensions have eased a bit for the moment leaving the rate markets focused on how equity markets traded. Finally, the trump administration did find out where the carrier group Carl Vinson was, it was not near the Korean peninsula as Trump said in his “armada” comments.