Mortgage Rates Got Hammered Today

Mortgage rates certainly got hammered today as concern over geopolitical tension in Ukraine turned a corner.  In less than 24 hours, all that was gained on the Mortgage Backed Securities (MBS) in the past week was lost.  This brings the most prevalently quoted conforming 30yr Fixed rate for the best-qualified borrowers at 4.375%, with a few even putting it back at 4.5% depending on the lender and scenario. 

No bullets flying, no additional aggression by Russia and a comment from Putin that he sees no reason for additional military action now.  Yesterday panic reined, today back to basics with the S&P 500 index making another new all-time high. The 10yr note yield increased 8 bps today after declining 6 bps yesterday when the high frequency traders took the equity markets down and safety moves into treasuries roiled the debt markets.  

For one trading session the focus turned from economic outlooks to fear; we noted yesterday and last week we didn’t expect the Ukraine/Russia turmoil would last in terms of markets. We surely didn’t expect the entire panic to end so soon. While the situation is still very volatile, unless Russia acts in a military manner it isn’t likely to have much of a lasting impact on financial markets. No doubt markets will re-visit the geo-political situation in the future when something sets off fear but now it’s back to paying all attention to the US economic data that will be forthcoming beginning tomorrow through the rest of the week.  

The MBS market was lower all day but held about where prices traded at 9:30 until this afternoon when additional selling sent prices lower and triggered re-pricing by most lenders. The 10yr note yield today saw its strongest selling since last Sept. We were expecting volatility this week but admit is has been more volatile than we imagined. The 10 still is holding its key moving averages but if the employment data tomorrow and Friday beats estimates the bearish interest rate outlook that has hung over the bond and mortgage markets for the last few months will escalate quickly. Russia still a wild card but unlikely to have much impact on markets now.  

In summary, we are coming up on the most important three days of the month for bond markets (and hence mortgage rates).  These are marked by the important employment reports beginning tomorrow morning with ADP's numbers and culminating with Friday's all-important Employment Situation Report.  If rates are ready to take cues from this data (as opposed to continue to follow Ukraine headlines), we will know it when we see the market's reaction to this data.  If the Feb report exceeds expectations, rates will suffer.  Have to be defensive here, unless you know of an upcoming Ukrainian assault, or really enjoy gambling for the sake of gambling, I would suggest locking at this time.