Mortgage Rates Steady Despite 10yr at 2.39%

Mortgage rates really did not have too bad of a day with the way the Mortgage Backed Securities traded and given that the 10yr note yield increased to 2.39% - which is now out of the narrow range it has been for the past three weeks.  Nevertheless, if the 10yr yield continues to inch higher MBS prices will follow. There were no economic reports today, nothing of significance from global markets.

The French election went as was expected to do, no exit from the EU. Now that the French election is over markets likely to get back to economic issues rather than parking and focusing on the outcome, although it really was not in doubt since the preliminary election two weeks ago.

The FOMC met last week, and now the outlook for the moment has moved more to expecting the Fed will move again at its June meeting in five weeks. Markets are increasingly wary of the Fed. For two long years now every meeting of the FOMC has been talking about a rate increase coming ‘soon’, but all we have had is two increases in the last 10 years. If markets see economic improvement, continued job growth and the slight possibility of inflation, the Fed will talk but at the end of the day unless markets get behind a rate move in June the Fed will no act. The Fed in many respects is a follower and not a leader - if the Fed cannot convince markets that a rate increase is necessary it will not happen.  

Tomorrow the only key report is March wholesale inventories, as well we will have the Treasury start its quarterly refunding with the 3yr note.  There should not be too much chatter, but it will get some attention.

Crude a little higher today, as OPEC saying it will continue its production cuts. Saudi Arabia saying the cartel is prepared to do “whatever it takes” to end the supply glut. Alexander Novak, Russian energy minister, said on Monday he supported continuing the cuts, arguing stronger oil demand would make them more effective in the coming months. Stronger demand? How will that occur? Cutting supplies enough to push prices much higher will cause serious financial difficulties for nations that rely on oil sales to drive their economies. The US shale sector has also in effect squeezed down costs. US energy companies have more than doubled the number of active drilling rigs from a year ago. It is about inflation, and as crude moves so too do many other commodities.  

In summary, bonds regressed slightly today, as France's election results confirmed Marine Le Pen's defeat, eliminating concerns over France departing the EU.  There's scant motivation for rates to improve at this point, and we are probably fortunate to be in our current range.  Unless you have confidential information on pending traumatic world events, I strongly recommend locking for borrowers within 30 days of closing.