Mortgage Rates Managed to Hold Steady

Mortgage rates managed to hold steady today.  We are still at 4.25% as the most prevelant quoted conforming 30yr rate for top tier borrowers, and even then with some additional closing costs – but 4.375% is in the picture. 

Less than 48 hours from now the FOMC will have released its policy statement and Yellen’s press conference will have been concluded. In the meantime there is not going to be much movement in the rate markets – we do not anticipate any additional selling in the bond or mortgage markets, and equally do not look for much improvement. The 10yr and MBSs are temporarily oversold after the swift increase in rates, traders unlikely to push it further until after the meeting and assuming the statement leads to a firmer conclusion that the Fed will begin increasing rates soon. While that view has increased in the last two weeks, there isn’t any hurry as it relates to the economy over-heating and increasing inflation; that is far down the road. So why will the Fed increase rates, other than it wants to extract itself from being the lynch-pin for the economy. The FOMC will cut the monthly purchases of MBSs and treasuries at the meeting, that is so well baked in the cake it doesn’t even get a nod from traders or investors.

Tomorrow the only data is April PPI is expected to be unchanged.  No inflation on the horizon so it will not elicit any market reaction of any consequence.

Bond-market indicators for long-term inflation, growth and funding costs are all lower now than they were at the end of the central bank’s first two rounds of quantitative easing. Presently the attitude is that rates are going to continue to increase; we are not there yet in our thinking, with no worries about inflation demand for high quality sovereign debt will continue keeping US rates from running much higher now. Look at the German 10yr bund at 1.02%, Japans 10yr at 0.58%, and other sovereign debt at yields lower than the US 10 - that in itself will provide support. That all said, in the present moment the bond and mortgage markets are bearish. What we want to point out here is that interest rates are not likely to climb much more this year---in our outlook. On the other side, we do not expect rates to fall much either unless geo-politics generates safety concerns.

In summary, at this point, the damage has been done to rate sheets. If you are still floating, I would continue to do so until at least tomorrow. Rates have regained some of the losses from last week; however, the benchmark 10 year note has broken out of the range to the top side. The biggest event this week will be Wednesday's FOMC announcement where many believe they will change the verbiage regarding low rates for an extended period which is the main cause of the recent and rapid rise in rates. If they keep the verbiage unchanged, hopefully we will regain more of the recent losses.

Remember, if you want to know the benefits of locking your rate today versus floating, simply give me a call at 314-744-7806 or visit me on my website at www.CallTheMoneyMan.com. I have access to real time Wall St. data and instant market alerts with breaking news that I monitor throughout the day to assist us on making the informed decision.