Mortgage Rates Continue to Increase

We have not seen this much of an increase in mortgage rates since November 2013 as we are hitting the highs so far in 2015.  Based on where we are today, it would be far too soon to say that the long term trend toward lower rates is defeated. Unfortunately, the strategy is also the same the other way. At times like these, the lock/float outlook is more defensive.

Stocks rose today after two days lower, and now back to where the key indexes were three days ago The 10yr note continued to increase today as it closed at 2.0%, with MBS prices lower. There was no direct economic data of substance today. 

Treasury sold $24B of 3yr notes this afternoon as the demand was average.  Tomorrow Treasury will auction $24B of 10yr notes, issuing a new note. The demand carries more significance than the 3yr as it reflects how MBS markets will react.

Not much data so far this week as Thursday’s January retail sales is the key report this week. Growing risk of a deflationary spiral in China is adding to worries about the global economy and putting more pressure on China’s central bank to expand credit. Inflation reads are still soft.  Crude oil declined today, but still above $50.00 but not by much.

Treasuries look like we might get a little bounce from the 2.00% level but all the work currently is negative and as such I strongly consider weighing your risk versus your reward.  Tomorrow has two big meetings in Europe, the success or failure of which could have major repercussions for markets. The Ukraine meeting with Germany, France, Ukraine and Russia—no deal and Obama wants to send ‘lethal weapons to Ukraine. Tomorrow evening the finance ministers of the euro area meet to see if a new deal can be done for Greece. Greece looking for a bridge loan to avoid defaulting. Germany is opposed.

In summary, rates were a shade worse today as the selloff in mortgage bonds continued. The silver lining is we now have what has been very solid support near current levels which should prevent rates from further drops. Bonds are also over sold while equities are over bought which creates the potential for a reversal. Historic trends and logic leads me to believe the risk vs. reward favors floating at these levels. However, with the 10yr settling at the 2.0% today - all bets are off.  It is a gamble either way, and as I said yesterday, my crystal ball has yet to be fixed as it is still in pieces….