Mortgage Rates Continue Downward

Mortgage rates continued to slide downward today.  While there was no significant economic data today, rates benefited in part from the ongoing weakness in stocks, which are on pace for their worst 2-day loss since January.  When investors are pulling money out of stocks, the bond market can be one of the beneficiaries, including the Mortgage Backed Securities (MBS) that most directly affect mortgage rates.  Increasing demand for MBS corresponds to lower rates, all things being equal.  The most prevalently quoted conforming 30yr fixed rate for best-case scenarios is back to 4.5%, and is now approaching 4.375%.

 

The path lower will be choppy, look for stocks to make periodic attempts to improve as the strong bullish overall sentiment will attract investors still holding on for more improvement. The bond and mortgage markets will benefit with each leg lower in the key indexes that said though, technically the 10yr has a major road block at 2.70% and 2.60% currently.  It will likely take a huge one day decline in equity markets for the 10yr to decisively crack 2.60%.

Be careful tomorrow as the recent decline in the bond market is driven by how the stock market is trading.  As noted above we fully expect a huge decline in the equity markets but the time frame isn’t immediate.  The 10yr is right on its hard support at 2.70%, any improvement in stocks in the morning will push prices lower in the MBS and treasury markets.  Overall the rate markets are likely to fall more however the ride lower will be choppy. 

In summary, the last three trading sessions have been very good for mortgage bonds.  I believe there is more room for rate improvement before the bulls get tired.  How much more improvement will depend on the equity market. Float with caution and be ready to lock should profit taking take place.