Mortgage Rates May Go Lower

It is Tax, Passover, and Easter Week!  I know that I may be of the minority, but some other better known economists out there are projecting the same as it is anticipated that we might just see lower mortgage rates in the near future - before they go up as it should.  We are not looking at any long term “refinance boom” like we have had in the past decade – but it could last for 30-60 days once the market hits around 14,500. 

March Retail Sales came in much better than forecasts.   The better report bolstered the stock indexes and took a little out of treasuries and Mortgage Backed Securities (MBS).  Sales were the best since Sept 2012.  Better sales suggest increased demand after the weather kept consumers from shopping. Sales at department and general merchandise stores jumped the most since March 2007.  Prior to sales data the 10yr was at 2.63%, after the release at 2.64%.

Ukrainian flare-ups this past weekend and tough words on the euro from the European Central Bank dominated markets Monday in Europe, with geopolitical risks carrying the greater weight.  Here in the US traders and investors are not giving the situation as much concern as Europe where any increased sanctions on Russia will hurt the EU economies a lot more than the US.  Very early this morning before trading began, the US stock indexes were soft but began improving, then March retail sales took the outlook up a notch.

In recent trading in the equity markets there have been a few days when the key indexes opened better but by the end of the session indexes slipped.  Today a better start, how the stocks close will have direct influence on how the interest rate markets close. The recent decline in rates and stock markets may be running out of steam in the immediate future. The 10yr note tested a key resistance level on Friday at 2.61%, this morning at 2.64 as once again the rate has failed at 2.60%.   Again there is more belief that there is more selling to come in the stock market.  If correct the bond and MBS markets should continue to hold these low rates.  How low rates will fall though is not likely to be much more from present levels unless the Russian/Ukraine turmoil increases to actual civil war with armed confrontations increasing.  In the absence of geo-political events the treasury markets are approaching lows that will take a lot to penetrate.