Mortgage Rates Likely to Increase Short-Term

Politics have ruled this week as we had the much anticipated Comey testimony yesterday with Trump tweets, and the media, along with both sides of the aisle, trying to figure out who won or lost. And today, we get the surprising loss in parliament by Theresa May in the UK. May called for a snap election that she believed would cement her power in parliament to take the UK out of the EU. 

Unfortunately, this back-fired, and she no longer has the majority she thought she would achieve. The result is that she narrowly won, but her party lost its majority. So, to remain the Prime Minister, her party must partner with other parties to have the block of votes to keep her in power and to move any legislation through. She will have to make many compromises that she wouldn't have needed otherwise. This has market participants speculating that Brexit negotiations, which start in 10 days, will be more difficult.

The winner of all this is the dollar, which is benefiting this morning from the new political turmoil in the UK. The 10yr note experiencing more selling as I noted in the last few days here, and because of such, I anticipate that mortgage interest rates would likely increase and MBS prices would slip back.

Next week the Fed has a lot coming as the FOMC is expected to increase the FF rate by 0.25%.  The policy statement that will (should) allow increased speculation about whether Fed officials are tilting toward another increase in September. The Fed will report its quarterly update on inflation and GDP expectations over the next two years, and Yellen will hold her press conference after the FOMC meeting Wednesday. A lot to chew on with the recent decline in rates and at these low levels based partly on recent low inflation readings.

At 11:00AM, we have the 10yr back above 2.20% at 2.21% and MBSs on the negative side again today. With all this, I am not anticipating any major changes and/or significant price improvements the rest of the day and am keeping my recommendation to lock if you are closing in the next 30-days.  Do not get me wrong, I am still bullish on rates, but just not now.