Mortgage Rates Moved Higher Fast Today

Mortgage rates moved higher today at the fastest pace since early July as bond markets began backing away from more anxious levels associated with last week's geopolitical headlines. Such headlines can motivate investors to seek safe-havens such as Treasuries and MBS (the mortgage-backed securities that influence mortgage rates). Since last week, bond markets have been relatively on edge but never moved any lower than the initial move on Thursday. If there has been one day since then that "undoes" the flight-to-safety, today is the best candidate.  Ultimately, the most prevalently-quoted conforming 30yr fixed rate moved back to 4.25% today, though some lenders remain at 4.25% with 4.375% coming back into the picture. 

Not a good day for the MBS markets, prices took a big hit today with the 10yr note failing once again yesterday to break its key resistance at 2.44%.  MBS prices down as much as 40 basis points at one time this morning. The rate markets opened weak at the onset this morning even with the US stock market not doing much. The Ukraine fear factor has lessened at the moment, and with the FOMC meeting coming up on three more market days, and the view that the Fed may add more direct comments that the bank is ready to begin increasing interest rates there is a balancing of those fears in geopolitical events and turning to normal domestic concerns.

Not helping the bond market - data out of Europe and China on manufacturing and services was better than thought. Euro-area manufacturing and services grew while a gauge of Chinese factory activity rose to an 18-month high in July. The ECB has added stimulus with a new lending program last month; manufacturing and services index increased to 54 from 52.8 in June. In China manufacturing grew to an 18 month high in July. Global economic data, while not quite as important to traders as domestic data, does have a direct effect on US markets.

This morning June new home sales were expected to have declined from May, but the decline was much more substantial than forecasts. A big decline in weekly claims also drove rates higher.  Tomorrow the only scheduled data comes in the morning with June durable goods orders, data that is closely watched by markets. The estimates are for orders to have increased 0.5% after May orders were down 0.9%.

Technically, after the 10yr has failed the last week from declining below that key resistance at 2.44%, long positions are being reduced. As previously noted, our work will stay slightly bullish until the 10yr moves above 2.57% on a closing basis. Markets are less fearful for the moment about Ukraine, the fighting is continuing and even escalating but Europe and the US have been surprisingly silent this week about increasing sanctions. A reminder, next week the FOMC meeting, likely will keep the bond and MBS markets from gaining much unless there is a renewed fear element.

In summary, rates headed a bit higher today. If you have not locked the last few days you may want to if you are risk averse. If you can stomach potentially locking in at a higher rate than is currently available floating can pay off. Mortgage bonds have been consolidating and appear to be ready to break out soon. To what direction we still don't know but staying patient and waiting for the break can be a smart move.