Overseas Risks Benefit Mortgage Rates

Mortgage rates moved lower today as bond markets benefited from overseas risks. The most prevalently-quoted conforming 30yr fixed rate for flawless scenarios remains at 4.25%, but 4.125% is now there with lessor fees than yesterday.

This The bellwether 10yr note broke its resistance at 2.44% this afternoon, now at 2.41%.  This morning I suggested locking as I did not expect much movement through the day. The key stock indexes opened better but reversed course and declined through the rest of the day; the DJIA at one point -100 points. The geo-political concerns are trumping any and all economic reports, most of the data for June and July, including key ISM indexes, have been better than expectations yet money is moving into safe havens and out of stocks.

The increased number of Russian troops on the Ukraine border is raising concern that an invasion is coming according to one US source.  The situation so far has not damaged the US economic outlook but it has driven Europe’s stock down and interest rates in Europe are at historic lows, the US still has higher long term rates than exist in Germany and other European countries (other than those countries in southern Europe). Russia retaliated yesterday against EU and U.S. sanctions by ordering restrictions on food imports from countries that seek to punish Russia. The government also threatened to target the automotive, shipping and aerospace industries.

Even though the 10yr note broke the Wall of Resistance today (2.44%), clear sailing to lower rates is not assured. Let’s see what happens tomorrow. As we have noted the technical indicators are all bullish for the bond market, however at these levels even interest bulls will be quick to retreat with any softening of geo-political issues in Ukraine and the mid-east. Every day now is driven by events we cannot anticipate on a day to day basis.

In summary, floating appears to still be the best option, day to day. With Europe slowly dragging US rates lower and no significant data scheduled for tomorrow, I think the odds strongly favor rates continuing lower or remaining the same. There appears to be less risk toward higher rates, day to day, right now.