Mortgage Rates Continued Downward

Mortgage rates continued downward – but not as fast as we have seen the last several days.  The bond and mortgage markets opened a little better early this morning and picked up some additional momentum this afternoon.  The stock market, after selling over the last two sessions, tried to improve but not with much success - the NASDAQ did do better after a huge decline last week and yesterday. This afternoon Treasury began this week’s auctions with 3yr notes, normally not a lot of interest in it for Mortgage Backed Securities (MBS) and long dated treasuries but the auction did meet with good demand. Recent Treasury auctions have been met with very nice demand regardless of the term of the auction.  Today's improvement brings the most prevalently quoted conforming 30yr fixed rate for best-case scenarios close to 4.5%, with some still pushing 4.375% with some additional fees.

Yesterday and today did not have any direct data to draw the market’s attention, but tomorrow the minutes from last week’s FOMC meeting will be released at 1:00pm CST.  The minutes provide a little more insight on the debates within the meeting -  this time though maybe not much after Janet Yellen essentially mitigated her remarks at the press conference after the meeting that shook investors on her comment that the Fed will likely begin increasing interest rates as soon as Spring 2015.  Her speech in Chicago a week later cooled the fear factor when she criticized the employment situation – as she pointed out that most jobs were low paying and not jobs that will grow the economy much.  An hour prior Treasury will auction 10yr notes. The 10yr auction will be a key to how strong the recent rally in the bond market really is.  In the morning tomorrow February wholesale inventories at  9:00am CST.  

Most of the small rally in treasuries in our view is due to investors hedging against the possibility of a big decline in the indexes.  Ukraine/Russia tensions have increased a little with news that private troops are in Ukraine to keep Russia from nipping off another piece of Ukraine but overall there are no serious geo-political fears at this time. It is a volatile situation, difficult to predict what will occur next.

In summary, there is still no real changes in mortgage and treasury rates as technicals swing back and forth.  This afternoon the 10yr has broken below 2.70% but to prove any sustainable move the rate will have to stay below 2.70% for more than three days as has been the case since late January.  I would recommend continuing to float as we have been since last week before the employment report.  Rate markets are vulnerable to rapid swings within the 10bp 10yr yield range so it is a day at a time for now.