Mortgage Rates and the Fed

A very nice rally in the bond and mortgage markets yesterday after Janet Yellen soft peddled when the Fed would begin increasing interest rates. Most were “sure” the Fed is going to increase interest beginning at the June FOMC meeting, after her testimony to the Senate Banking Committee the surety ebbed as to the timing. Yellen said, as she has been saying, that patience will dictate when the lift-off will begin. Still basically data dependent - it is not completely off the table that the Fed will start at the June meeting, traders just are not as “sure” as they were yesterday morning at this time. The explosive improvement in interest rates yesterday, so far nothing more than some short-covering as timing is back on the front page.

Early this morning the 10yr unchanged as was the MBS price from yesterday’s closes.  Currently at 10:00AM, we are still seeing levels moderately unchanged, even though more positive than earlier with the 10yr at 1.97% and MBS’s +9.

As noted yesterday that the bearish technical bias after the strong rally yesterday changed to neutral from negative, but the 10yr held at its 20 and 40 day averages, both at 1.98% where we have resistance. The best I can say now is that the bond and mortgage markets still have a hill to climb if the markets are to turn bullish. There are a number of us that still believe that interest rates are not likely to increase much this year but also that there is nothing that suggests rates will decline much either. The Fed will increase rates, the only question is when. After yesterday’s testimony from Yellen uncertainty on timing resurrected somewhat from a sure bet for a June move to more likely later this year. If the 10yr note yield clears 1.98% the near term outlook will improve, if not we have to hang with the bearish condition that presently exists.

What does this mean to those who are considering what to do?  My suggestion is that if you are closing within the next 15 days, I would lock and not worry about it.  However, if you have the stomach for the volatility that still remains in this market, cautiously float and stay tune for more updates.