Mortgage Rates Bounced Back

Mortgage rates dropped today after news broke that President Trump was disbanding his councils of CEOs.  The move apparently came in response to attrition among several CEOs following Trump's press conference on recent events in Charlottesville, VA.  In not so many words, Trump disbanded the councils before any more CEOs had a chance to quit. 

The minutes from the FOMC meeting in July were released this afternoon. Somewhat of a surprise that there were members in the FOMC that spoke up about not beginning the Fed tapering in September as markets and most observers were expecting based on Yellen’ recent testimony to the Congress and other Fed officials that have spoken in favor of beginning in September. There was increasing concern in the meeting that the soft inflation, still a conundrum for the Fed, and the Fed keeping rates too low, would lead to excess risk-taking by investors seeking higher returns. There were those at the FOMC that suggested the committee could afford to be patient under current circumstances in deciding when to increase the federal funds rate further and argued against additional adjustments until incoming information confirmed that the recent low readings on inflation were not likely to persist.

The long end of the curve and treasuries overall have found comfort in the lack of inflation that is a killer for fixed income investments. The minutes released this afternoon re-confirmed the Fed is not anxious to move rates higher and, what I read is that the tapering that was widely thought to begin at the September meeting is now a big question. As for a rate increase that also was widely thought to be at the December meeting, that too now is subject.

The initial reaction sent the 10yr note yield down to 2.22% from 2.28% this morning, stock indexes gave up their gains and MBS prices went positive for the first time in two days.  It looked precarious this morning for the 10yr and MBS from a technical perspective but this afternoon models and analysis did hold for the time being. From a fundamental perspective, the economic outlook is improving albeit slowly with mixed economic reports, underlying uneasiness globally, productivity slowing, wages although slightly better still low, and now the political fallout that is increasing over Trump remarks recently that bring into question whether there is going to be any significant tax cuts, health care re-dues or much of what was promised at the election last November.

Today saw disappointing news in housing starts and permits in July. Crude oil, one of the keys that Yellen mentions often as a leading force for inflation outlooks, has been falling recently after hitting its technical pivot at $50.00 a week ago, now trading at less than $47.00/barrel. Tomorrow, we get the August Philadelphia Fed business index, July industrial production and factory use, and July leading economic indicators.

In summary, bonds managed to bounce off support at 2.28 continuing to confirm our range-bound trading between 2.28% and 2.21%.  Following the FOMC announcement, bonds have continued to move lower and have bounced at 2.21.  Unable to break again.  All that said, I would lock up.