Mortgage Rates Lower Thus Far While Yellen Speaks

Mortgage rates are moving lower so far today.  MBS ended the day yesterday on a positive note and thus far this morning, even with the fluctuations probably weighing every word from Janet Yellen while she speaks, we are seeing the same today.  At 10:45AM, MBSs are a +16BPS and the 10yr is at 2.32%.

Janet Yellen is at the House Financial Services Committee as I write this report, but her prepared text was released at 7:30. She repeats that tapering will begin sometime this year and that a limited number of gradual rate hikes will extend over the next few years. She did echo comments from Leal Brainard (Fed Governor) yesterday that interest rates may not have to increase much more to come to a neutral bias, saying the neutral rate is "quite low" by historical standards and that the funds rate do not have far to go to hit a neutral stance for policy. On inflation, she sees it because of cheaper cell phones, drugs, and oil -  and said she is not sure when inflation would begin to increase. That is a major retreat from her and the Fed’s previous comments that inflation is "just around the corner." On the unwinding of the $4.5 trillion Fed balance sheet, she also softened a little, commenting that the reducing of the balance sheet is still unknown and that the Fed does not intend to use unwinding as a policy tool. On the economy, she said odds are 50-50 whether growth proves stronger or softer than expected and she gave an upgrade to the global economy. Overall the statement is a lot less hawkish than what markets were expecting. I have a feeling during the Q&A, she is likely facing a lot of questions on details, hence the fluctuation in the prices.

Given the almost total belief that the Fed would continue tightening and the forecast of much higher interest rates that have been built into thinking, her statement has roiled the bond and stock markets this morning. Interest rates dropped, and stock indexes are higher.

Weekly Mortgage Applications tanked -7.4% led by a large drop of -13.0% of Refinance Applications. Purchase Applications were down -3.0%. We also have the Treasury Auction at Noon with the 10yr note, followed by the release of the Fed's Beige Book at 1:00PM which is prepared in advance of the next Fed meeting. Crude oil this morning increasing over $1.00 as the bearish bias lessens.

Mortgage rates are likely to be very volatile today while Janet Yellen speaks to Congress, but we have had a very nice start thus far. Janet Yellen has a way of speaking and the Fed and its members have a way of twisting the pretzel, so be alert through the day. While rates are currently moving lower based on her prepared remarks, things could change very quickly based on the answers she gives.