Mortgage Rates Slightly Higher Ahead of GDP and Fed
Mortgage rates were slightly higher today as a result of bond market
weakness late yesterday and again this morning. Some of that weakness has
been erased this afternoon, but trading levels in Mortgage Backed Securities
(MBS) that most directly affect mortgage rates still are not back to
yesterday morning's range. The most prevalently quoted conforming
30yr fixed rate for best-case scenarios still is at 4.5%
Both stocks and long term notes improved today ahead of FOMC tomorrow. The 10yr note yields started at 2.73% this morning, at 4:00 2.69%. Confusing many, most all investors and traders are completely convinced interest are going to increase - and they have but all in the belly of the curve. Rates are increasing but not longer term rates which includes 30 yr mortgage interest rates. The yield curve has flattened, suggesting no inflation pressures and the outlook for higher rates when the Fed begins increasing rates in about a year according to the most recent poles of investors. Parking money in high quality sovereign debt on fears over Ukraine and global economic concerns automatically leads to the US 10yr note, the highest yield compared to rates in Europe’s safest countries. When viewed in that context the US is the best of the rest.
Both stocks and long term notes improved today ahead of FOMC tomorrow. The 10yr note yields started at 2.73% this morning, at 4:00 2.69%. Confusing many, most all investors and traders are completely convinced interest are going to increase - and they have but all in the belly of the curve. Rates are increasing but not longer term rates which includes 30 yr mortgage interest rates. The yield curve has flattened, suggesting no inflation pressures and the outlook for higher rates when the Fed begins increasing rates in about a year according to the most recent poles of investors. Parking money in high quality sovereign debt on fears over Ukraine and global economic concerns automatically leads to the US 10yr note, the highest yield compared to rates in Europe’s safest countries. When viewed in that context the US is the best of the rest.
It is a BIG day
tomorrow. Tomorrow and through the remainder of the week there is a lot
to absorb. At 8:15 tomorrow morning ADP kicks off employment for April with its
private jobs report, the consensus is for an increase of 210K jobs. ADP
and the BLS generally have different numbers and it isn’t unusual for the ADP
report to shake up what the BLS will report on Friday - the current
estimate from BLS for private jobs is 213K. Next up tomorrow the first
(advance) GDP report for Q1, markets expect growth lower at 1.1% from
+2.6% growth in Q4, the advance report usually is without all the data from the
third month and revisions are likely when the preliminary report hits a month
from now. Also at 8:30 Q1 employment cost index is expected +1.5%. At
9:45 the regional Chicago purchasing mgrs. index is thought to be at 56.9 from
55.9 in March (Thursday the national ISM manufacturing index will be reported).
Then at 2:00, the FOMC policy statement that will likely say the Fed will taper
another $10B from its monthly purchases of MBSs and treasuries, down to $45B a
month from the initial high of $85B a month begun in Sept 2012. All in all
tomorrow has a lot of juice to squeeze. If the Fed were to take a break from
cutting purchases tomorrow the stock market will be hit very hard, but we don’t
expect to cry uncle over the economic growth by delaying the monthly reduction.
Technically everything
remains in neutral as has been the situation for weeks now with very little
movement in the rate markets. Maybe the next few sessions will break the
log jam and push interest rates out of their well-established trading ranges.
Ukraine is still a major underlying concern but so far as long as there is no
direct invasion by Russia military the unrest will not cause much market
reaction. Sanctions are a placebo, the US and Europe were forced to do
something, the sanctions may hurt a little but maybe not enough to change
Putin’s designs.
In summary, Friday is definitely the big day, but don't overlook tomorrow as ADP Employment, GDP, and the Fed Announcement can certainly have an effect. Rates are stuck in the middle of a 3-Month range, but locking today is a good move in my opinion as any optimism in tomorrow's data can move us right back to the top of that range.
In summary, Friday is definitely the big day, but don't overlook tomorrow as ADP Employment, GDP, and the Fed Announcement can certainly have an effect. Rates are stuck in the middle of a 3-Month range, but locking today is a good move in my opinion as any optimism in tomorrow's data can move us right back to the top of that range.
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