Mortgage Rates Down Before Jackson Hole

Mortgage rates reversed yesterday's move today, falling back in line with recent lows. Stocks were weaker today and just enough to boost MBS prices and push the 10yr note yield down to 2.16%. The one economic report that had any interest today did little to the pricing as July new home sales were lower than anticipated.

Pay no attention to the debt ceiling approaching - happens every other year with Congress never increasing the debt limit until the last minute; stupid but that is our Congress. Neither Republicans or Democrats want that albatross hanging over their heads that they were responsible for the US defaulting on its debt. The US debt at $19 trillion+ and will continue to grow. The US and most other nations have been living buying for decades. If we had a balanced budget either taxes would be quintupled or most of the government services would be gone.

Pres. Trump threatening government shutdown unless money is allocated to build The Wall.  Media needs fuel to function even though Trump has no intention of shutting down the government, he would be packing his bags. Trump works on threats, everyone knows it yet it is good for a topic for the day on financial news and web sites. The takeaway is he has not backed off of The Wall and will not rest until its built, although Mexico is not likely to pay for it as he has tweeted and said numerous times.

Dallas Fed President Robert Kaplan reiterated that he wants to be patient and wait for more information before calling for another rate hike, adding that a tight labor market supports the case for removing some accommodation. Mr. Kaplan also noted that a high level of debt in the U.S. is an impediment to future growth. Same as he has said previously as well as other regional Fed presidents.

Tax cuts - coming or not? Tax reform, not likely, that is a package that has not happened since Regan and would take too much co-operation between the parties that currently have difficulty agreeing on what time it is. Tax cuts can be handled with just Republicans, but that too is questionable - just look at health care failure. 

Jackson Hole begins tomorrow evening but not until Friday will it possibly impact markets with Yellen and Draghi speaking Friday morning.

The decline in the rate of the 10yr note today is good and adds to my bullish bias. I still believe it will go lower to 2.10% - and possibly much lower if the stock market enters a correction phase. Almost every bullish money manager is expecting a 10% to 15% correction in the three indexes but no one will start the selling, waiting for someone else to begin the parade down. As I noted recently a money manager that jumps off the bandwagon too soon is subject to the wrath of investors.

In summary, bonds posted small gains today, on the eve of the Fed's Jackson Hole Conference tomorrow.  Fed rhetoric has been fairly transparent and predictable lately, so it seems unlikely any breaking news will come out of the meeting.  We are back near the bottom of the recent rate range - the question is whether rates get enough motivation to continue downward.  I need to see more than a day's gains to pronounce this a trend.  Right now, I am enjoying this low and letting people realize that if you are within 30 days of closing, go ahead and lock.