Mortgage Rates Trading in Narrow Range - No Movement Either Way

The bond and mortgage markets opened slightly better this morning, with the 10yr Treasury note holding onto its rock-solid technical resistance at 2.32%.

Early this morning, October US trade deficit was -$68.3B on forecasts of -$65.4B>  Wholesale inventories in October were below expectations, as well as the September FHFA home price index. September Case/Shiller/S&P/CoreLogic home price index hit expectations. The November Conference Board’s consumer confidence index, expected at 124 from 125.9 in October, increased to 129.5. The confidence index now at its highest level since 2000. At Noon, the Treasury will auction $28B of 7yr notes. Yesterday’s 5yr was met with OK demand.

Jerome Powell, current Fed governor, is testifying at his hearings for his ascension to chair the Fed. Tapped by Trump to replace Janet Yellen, whose term expires in February. Powell is not a Ph.D. in economics, something that usually does not happen. His confirmation in the Senate should go well. In prepared testimony released by the Fed yesterday, Powell said Fed officials continue to expect interest rates to rise “somewhat further” and the size of the central bank’s balance sheet to shrink gradually. He defends the Fed’s independence that at times has been under fire from some Republicans in Congress.

The tax bill working its way through the Senate this week with a vote expected Thursday. Not a done deal, with varying debates about specifics. Senator Bob Corker said he would be happy if the entire bill was thrown in the incinerator. Republicans can only lose two Republican votes to get a bill passed; no Democrat will vote for it. Susan Collins (R., Maine) and John McCain (R., Ariz.), killed the healthcare bill earlier this year and still appear to resist the portion of the bill that ends the insurance mandate that is in it.

This morning, the 10yr note did get back to 2.32%, a level that has held back any additional improvements the last six weeks. On the other side, the 10yr is well-confined to a very narrow range with solid technical support at 2.40%. A few wonder why I am so completely focused on the 10yr note - the movement of the 10yr basically dictates the movement in mortgage rates. No inflation and much better sovereign rates in the US compared to other major markets (German 10 yr. bund yield 0.348%, Japan’s 10 yr. +0.039%). Not likely to break below 2.32% today unless there is a substantial sell-off in equity markets, and I doubt that will happen.

Once again today we're looking for mortgage rates to trade in a tight range with little volatility. The one caveat is the tax bill. If we see some unexpected movement, we could see mortgage rate volatility.