Mortgage Rates Moved Upward Again

Mortgage rates moved moderately higher again higher today. The equity markets continue to roll on, up another 200+ points for the DJIA and NASDAQ a new all-time high. The bond market feeling the pinch dragging mortgage prices lower and rates up. The recent nice improvements in interest rates was led by geo-political fears, as the French elections was the last axe to fall and now that France appears in no danger of causing another rupture in the EU investors are piling back into equities even though nothing economically has changed. Trump out with his corporate tax cuts tomorrow and little of import yet about the personal income tax cuts that will likely take all year to resolve.

Not more than one week ago the majority of big money managers and numerous economists and stock market analysts were out commenting individually that at the levels the key indexes were trading a week ago the equity markets were over-valued. Since the French election and no change in economic outlooks apparently stocks are no longer over-valued. One change though, reported earnings so far have been generally beating the Street forecasts.  

Yesterday the bellwether 10yr and MBS markets managed to hold on with stocks rallying, today additional selling has picked up momentum and has turned my thinking from neutral yesterday to slightly bearish today for treasuries. 

This morning we got solid news on March new home sales, as it was the best monthly read since July 2016 and more important the best in this expansion. The surge in sales did not come at the expense of pricing which, on the contrary, was very strong in March, up a monthly 7.5% to a median $315,100.

The April consumer confidence index backed off from a huge 124.9 in March (revised from 125.6) but still the best two-month average of consumer confidence going back eight years. This afternoon Treasury sold $26B of 2yr notes which got a solid bid and good demand.

Tomorrow there are no compelling economic reports. Weekly MBA mortgage applications but that never gets much market reaction. Tomorrow afternoon Treasury will sell $34B of 5yr notes.  

Also tomorrow Trump is expected to unwrap his tax cut plans for businesses. According to officials at the White House a proposal to slash the top tax rate on so-called pass-through businesses, including many owner-operated companies, to 15% from 39.6%. Some hurdles ahead but it is a start.

In summary, bonds continued their orderly sell-off today, and pricing worsened for essentially the 6th consecutive day.  It's time to face facts:  France's election results lessened France's chances of EU withdrawal, averting systemic global economic drama, the reason rates dropped.  Until more drama emerges (US budget impasse, 2nd round French election discord?), there is little incentive for lower rates.  Unlike last week, the trend is not our friend right now.