Mortgage Rates Back To Critical Levels Again

For the past several weeks since the end of March, most of the movement in mortgage rates had been slow, steady, and generally unfriendly.  Today was a stark exception as rates surged significantly lower (relative to their recent range) following weaker-than-expected economic data. The reaction to the data was swift because investors were waiting to see if it would confirm fears about the direction of rates earlier in the week.  Not only did the data fail to confirm the fears, it suggested a completely contrary move.  In other words, rates were forced to make a quick course correction. 

Interest rates are now back to levels that are critical technical levels, with the 10yr note rate at 2.33% is right on its pivot point. If you recall, 2.32% is a key level.  After pushing up to 2.41% earlier this week it took today’s economic releases to take the rate back to this very key level. MBS prices declined along with this movement and drove banks to cover their forward short positions.

The stock indexes continue to defy a correction - overbought fundamentally and technically, investors will not be shaken from their bullish bias. Even though no tax cuts will happen this year, no fiscal spending, and barely a new health care plan. There are times when markets do not obey the warning signs and can hold on longer than expected.  This is one of those times.  

Trump still warring with critics over the firing of Comey.  Not much of an interest for markets for the moment however. The Federal Bureau of Investigation probe and parallel congressional investigations have cast a cloud over Trump's presidency since he took office on Jan. 20, threatening to overwhelm his policy priorities (that will be a market concern if this issue continues to escalate). Democrats accuse the Republican president of trying to dent the FBI probe by firing Comey, and have called for a special counsel to investigate the Russia issue. Trump in the meantime continues to say he has no ties to Russia and does not have any business interests in the country.

Next week is Housing data as we get NAHB housing market index for May and April housing starts and permits.  We also get April industrial production and factory usage, May Philadelphia Fed business index, and April leading economic indicators.  

Wish I could say the bond market has turned bullish - but not yet, as we need to see the 10yr below 2.32%, preferably below 2.28%. That said, today’s improvements are a welcome site and with this improvement, I would recommend to hold rate locks unless you are within 15 days of closing, and then enjoy this turn of events.

In summary, if you floated overnight, you were rewarded today. Bonds rallied nicely, but since it is a Friday, I believe we will see even better data on Monday. 

HAPPY MOTHER”S DAY TO ALL MOTHERS !!!