Mortgage Rates Had A Very Interesting Day

Mortgage rates had a very interesting day for those that pay more attention to the fine points of the markets and the news.  When bond markets weaken, prices fall and rates rise. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios has now gotten closer to the 4.25% than 4.375%.

Today another day of increased volatility.  The 10yr started this morning at 2.57%, then increased to 2.64% and now back to 2.62%. Mortgage Backed Securities (MBS) followed suit as well all day.  The pot is beginning to boil.  No matter the reason or what one thinks, the bond and stock markets are presently exhibiting the kind of volatility that leads to a big move.  Gold, after putting new multi-year low prices took off today, leaving many including me not fully understanding the reason.

 Ever since Tuesday’s surprising increase in the May CPI inflation has risen to the front burner with conflicting views. This morning the Philadelphia Fed released its June business index further confusing the inflation issue.

Why are markets questioning Janet Yellen and the Fed now after constant faith the Fed knows all?  I believe as I have been saying now for a month, that investors are increasingly more believing stocks are headed lower and the off-shoot is that any data or comment is being seen as a reason to worry. Investors need a lot of ammo to think about exiting the equity markets, and inflation fears translate to lower potential earnings.

There are no economic reports tomorrow.  No positive progress in the 10yr note or MBSs - neither market has been able to turn bullish, however as we have noted, the bearishness is also benign.  Something is brewing and about to change.  Recent market action is signaling a sea change in markets is not far off.  Not sure which way - stocks look weak but the Fed is going to keep rates low for ‘a lot longer’.  I do not discount an explosion higher, but if this current inflation bug that has risen this week continues stocks are going to perform poorly. Equally, if the inflation fears increase long term interest rates (mortgages) are likely to increase. It is still a moving target that has to be digested daily while keeping an open mind as much as possible. A lot of intraday volatility but at the end of the day today mortgage prices are essentially unchanged.

In summary, we had a nice run in MBS from mid-day yesterday through this morning.  Now that the improvements have been somewhat erased, I would cautiously float.  Day-to-day movement remains minimal, so the stakes are only high if we move out of the recent range.