Mortgage Rates Got Hammered

Mortgage rates were not really expected to do anything this week, but it looks like a few traders made a name for themselves as they sent the market into a tizzy.  In other words, mortgage rates got hammered! The most prevalently quoted conforming 30yr fixed rates for top tier borrowers by the end of the day moved quickly from 3.875% to 4.00%, but if you wanted to pay some fees, you could get yesterday’s rate if it made sense.

We were looking for a rather quiet session today – but we did not get such. The 10yr cracked its support at 2.21% and triggered sell stops sending the 10yr quickly to 2.27%.  I wonder if the next support level is at 2.35%/2.40%?  The technicals have been slightly positive, now slightly negative. The break in the 10yr sent MBS prices up 47 bps points and re-pricing. We have been keeping locked so the market action did not hurt too much – but I really do not like what happened today.  The key trigger for the selling came when the 5yr note auction details were reported at Noon – it was just downhill from there.  A kick in the gut for the bond market - the $35B 5yr note auction was weak and sloppy.

Increasing chatter within markets began yesterday and increased today that oil prices may be positioned for a rally after prices dropped almost daily for the past month. It makes sense, technically oil is extremely oversold and well overdue to retrace before eventually heading lower again. Offshore oil-drilling contractors, who last year were able to charge record rates for their vessels, are now under pressure to scrap old rigs at an unprecedented pace.

Also not sitting well, Q3 GDP was much stronger with growth than what was widely expected. More pressure for interest rates, the consumer sentiment index from the U. of Michigan ended the month at the highest level since Jan 2007. Christmas shopping coming to an end also seen as a little better than most optimistic estimates.  Is the consumer back?  Not ready to cast my vote yet.  The housing sector still is soft, consumers do not find a reason to buy.  This morning November new home sales were down along with an October revision – not looking good.

The break in the bond and mortgage markets this afternoon is severe enough to end the recent declines in rates. We thought rates might hold until the end of the holidays but the GDP report and today’s very weak 5yr note auction, and of course the continued improvement in equity markets also has finally begun to take its toll. Although rate markets today do not look good going forward, there is a growing belief among stock traders that a sustainable correction may be coming early next year, if that were to occur it will support rates but likely at a higher level after today’s major technical breakdown.  Tomorrow markets will close early.

In summary, it seems to me that mortgage pricing has bounced around in a fairly tight range for the past month varying little more than .125% during that time. We received a large upward revision to 3rd Quarter GDP #'s this morning suggesting a faster growing economy but other recent data has not necessarily given us strong confirmation. We know the Fed is moving towards normalizing interest rates sometime after mid 2015 but in a backdrop of a global economic weakness driving foreign interest rates ever lower US Treasury Securities remain very attractive which should temper any rise in rates. Still, a lot of uncertainly out there, however, and longer term the trend will be up, so closings within 15 days should be locked and beyond that lock decisions driven by your risk tolerance.

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 my website at www.CallTheMoneyMan.com. I have access to real time Wall Street data and instant market alerts with breaking news that I monitor throughout the day to assist us on making the informed decision.