Mortgage Rates Continued Higher Today

Mortgage rates continued moving higher at a relatively brisk pace today.　 The historically normal sources of market guidance--like economic data and Fed policy--remain afterthoughts compared to the potential rate cuts and easing measures from the European Central Bank (ECB).　Mortgage rates are already back to levels in line with early May.　Those aren't awful by any means, but they're not quite as amazing as they were a few days ago.　The most prevalently quoted conforming 30yr fixed rates for best-case scenarios still remains at 4.25%, but 4.375% is coming back into the fold.　

Another hard day of selling in the Treasury and MBS markets.　The 10yr note has breached a key level this afternoon, trading at 2.59%. Prior to the recent decline in rates, three weeks ago the 10 had very solid support at 2.57% and traded for almost two weeks between 2.56% and 2.50%, when 2.50% gave way it set off a huge amount of covering of short positions betting on higher rates, in turn rate fell to 2.44% in three sessions. Looking back now, based on how the market is trading it was mostly short-covering that drove rates lower. Once those shorts were out the 10yr has exceeded its previous support at 2.56%. The technicals look bad at the moment; but let’s not jump overboard yet until we see what the ECB does　on Thursday　and the BLS employment data　on Friday. The recent surprise has been the decline in rates more than the current increase in rates. It had been an almost certain belief rates were headed higher until safety moves over Russia/Ukraine came into play. That issue has ebbed for the moment. That the improvement was so short-lived implies the wider view is still there, that rates are likely to head higher. There has been little help from the stock market, it continues to hold very nice gains and hasn’t succumbed to any major correction yet.

Tomorrow has a lot to chew through - the May ADP employment report expected to show 210k new private jobs; the May ISM services sector index (55.3 from 55.2 expected). Q1 productivity and Unit labor costs, the April US trade deficit and the Fed’s Beige Book. Also　tomorrow　the MBA weekly mortgage applications report, normally not a key report but with the recent decline in rates the data　tomorrow　should get more attention than usual.

In summary, weakness in mortgage pricing today further cements my view that locking is the prudent move for now.  We have big time risks the rest of the week with the ECB Meeting on Thursday and the Jobs Report on Friday.  Too many things can go wrong here and momentum is not in our favor.  Floating your rate through this week is not for the faint of heart and not recommended.