Mortgage Rates Open a Bit Higher Today

Mortgage rates were sideways to slightly higher today, depending on the bank.  Underlying bond markets suggested a bit more movement, and that will likely be reflected in tomorrow morning's rate sheets unless bonds improve overnight.

23K is about to be tested sometime this week.  The way investors ignore anything but the questionable tax cuts that may happen. Cannot debate the right or wrong with any degree of confidence, and I do not want to ‘guess’ when the market will tip over. Been somewhat on the wrong side of that thinking - not wrong but cannot define the unbelievable run the US and some global equity markets are raging now. As some say - do not fight the tape.  It is a stampede that has shut down even the most bearish thinkers. Making investments in stocks or any other investments normally carries a degree of risk; ‘climbing the wall of worry”….not these days.

The Treasury market isn’t buckling as stocks climb, and I doubt it is geo-political concerns or lack of inflation or the Fed will not move on rates. Still strongly believe treasuries are holding because smart big money is hedging the increasing potential of a major stock market correction. It has been years, maybe decades, that equity markets have increased this much without backing and filling. 

This is the anniversary of Oct 19^th, 1987. The DJIA lost almost 40% of its value within three sessions. Beginning on the Thursday prior to Black Monday, more selling on Friday - then Monday. It was not an easy ride - scared the hell out of everyone. Brings back serious memories - hedging MBS risks and short over 400 10yr note contracts as rates were increasing and prices falling as stock indexes were sky-rocketing. Then the crash, bonds exploded interest rates fell and margin calls exceeded $2.5 mil, a huge amount back then. (The other side of the trade, long MBS coupons improved so in the end it was almost a zero loss but timing between being paid for MBS sales lagged the demand for margins. Apologize for the personal history, but know one day it is going to happen again as it did again in 2007, although that was a walk in the park compared to Black Monday.

On the calendar this morning I noted the Treasury budget for September would be released today, but now it is tomorrow at 1:00PM. Also, tomorrow September import and export prices and September industrial production and factory use.

Last week Trump indicated he would announce his appointment for the Chair of the Fed. This week he will meet with Janet Yellen on Thursday as part of his search for a new candidate for her position, a source familiar with the planned meeting said. His search includes Jerome Powell, a Fed governor, Kevin Warsh, a former Fed governor, Trump’s top economic adviser Gary Cohn, formerly a Goldman Sachs exec.

The 10yr note at 2.30% is up today while MBS prices down, but still better than last week.  Best to consider locking if you are floating as you are playing with fire.