Mortgage Rates Moved Lower - Settling Down

Mortgage rates moved lower today, following a policy announcement from the European Central Bank (ECB).  There were rumblings this week that with Europe’s economies picking up some momentum that the ECB would begin to follow the Fed’s moves to begin tightening up on rates. Mario Draghi said the level of inflation in the EU was still a worry point at 1.5% with the target set at 2.0%, like our Fed. The Bank of Japan also held its low rate policy last night.  The other minor support came this afternoon when Treasury auctioned $28B of 7yr notes that were gobbled up by foreign buying.

The tax cut overall plan hit yesterday. It is a beginning but do not expect any rapid passing through Congress. It will require time and a lot of debate (arguments) between the politicians, even within Republicans. As released it is the largest tax overhaul since Reagan and will not be swallowed easily or quickly. Small businesses and corporations are not racing to borrow in the first quarter.

The bond and mortgage markets appear on the surface not to believe the euphoria that has dominated the stock market this week. With most economists, analysts and media reporters continuing the mantra that the US economy will gain strong momentum, investors are not abandoning positions holding safer treasuries. The Fed out there speaking almost daily and echoing each other with forecasts of two more rate increases this year, but still falling back on data dependency as an escape if they and economists have it wrong – again!

Tomorrow we will get the first reading of three for the Q1 GDP.  The first read is lacking all the third month of each quarter and is usually taken with some salt. The economists and Wall Street are still expecting growth at 1.1% for the quarter, but note, the last three years the first quarter has been soft. We also get the April Chicago purchasing mgrs. index and the final U. of Michigan consumer sentiment index.

The 10yr note rate has moved back below 2.32% to 2.30 - not completely significant but does confirm somewhat that our rate outlook is still alive. Maybe on life support but price action is the true test and investors are not dumping bonds as most have been expecting. The ECB today put a little wind in the sales turning what I was seeing a somewhat bearish, back to neutral.

In summary, bond markets bounced back slightly today.  It appears we have weathered President Trump's tax reform plan.  The question now is where markets' next motivation comes from.  I would be happy with flat rates for a few days, and guessing that's the likely case, as we have the first week of a new month next week which of course, is Jobs Week - bringing April's jobs report and other data.  Just be careful and do not ignore the markets if you are floating.