Mortgage Rates Seeing Improvement

Mortgage rates improved today juiced up by the very strong 5 yr note auction this afternoon.  The 10 yr note rallied on the results, taking its yield down to 2.70%, 5 bps lower than yesterday’s close.  The underlying market gains fueling the drop in rates came in waves today.  However, even with the positive direction of the Mortgage Backed Securities (MBS), the most prevalently quoted conforming 30yr rate for top-tier scenarios still remained at 4.5%, but 4.375% is staring at us rather closely. 

Today's improvement marks the 4th day in a row that rates have either held steady or improved. Those are the sorts of streaks that increasingly invite a correction of some size very soon.  It could be tomorrow or it could continue for several more days. The point is that each day of improvement makes a correction more likely.

The bellwether 10yr note is sitting at 2.70%, a key technical level for us, and as usual keeping mortgage rates from increasing.  Since late January every time the note has moved below it, it stayed below for no more than three sessions before the yield went back above 2.70%. The note is now below the 100, 40 and 20 day averages;  however given the tight range of trading over the last two months the averages are not quite as important as they normally are. Treasuries are still getting support from the geo-political situation with Russia but that support in our opinion is not very strong. Keep an eye on how stocks perform; recent activity has been volatile indicating uncertainty regardless of the bullish chatter that dominates most investors’ thinking.

Today's improvement marks the 4th day in a row that rates have either held steady or improved. Those are the sorts of streaks that increasingly invite a correction of some size very soon.  It could be tomorrow or it could continue for several more days. The point is that each day of improvement makes a correction more likely.  Are we waiting to see if the roller coaster is about to take off again?  AS fun as the ride can be, it has been extremely frustrating as well.

In summary, today's 5 year treasury note auction was a home run. Once the results were released, MBS and treasuries both rallied.  Here we go again – should you lock or float.  Pigs Get Fat and Hogs Get Slaughtered?  If you like what you see, lock it, but if you love the risk, do it with caution.