Mortgage Rates End Bad Month on a Good Note

What has been the worst month for mortgage rates in nearly two years, the market was able to scrape together some modest gains to end the month.  Looks like the 10yr has closed out the week at 1.99%. This morning a too weak Chicago purchasing managers index - too weak because traders are not giving it much attention.  Both the bond and MBS markets initially shrugged off both reports this morning but this afternoon improvement in both markets.

Yellen stared this week with her Congressional testimony. Republicans now chair the both the Senate Banking Committee and the House Financial Services Committee. In the Senate testimony she was not harassed like the House Republicans when they launched into the Fed’s independence - wanting to get control over the Fed. She stood her ground and did not blink. Republicans saying she is too political because she meets with the President and the Treasury Secretary and not with Congress. Ignorance is as ignorance does - letting Congress have its hands into the Central Bank would be a political as it gets. Yellen left her options open on when the Fed will actually increase the FF rate for the first time in nine years. Most continue belief that June is the date but that is a sure thing and is still subject to uncovering current economic measurements. Most FOMC members agree it is about time but debate what time it really is.

This was a good week for the bond and mortgage markets, although it did not seem that way. February now gives way to March and daylight savings time (next Saturday). Next week’s economic calendar has a parade of Fed officials on the dais and Feb employment data. In the meantime Jan personal income and spending, construction spending and ISM manufacturing index (if the ISM index drops like the regional Chicago PM index look for the bond and mortgage markets to rally). Nothing Tuesday. Wednesday ADP payrolls for Feb, Feb ISM services index and the Fed’s Beige Book. Thursday weekly claims, Q4 productivity and unit labor costs. Friday employment and Dec consumer credit.

In summary, the bond and MBS markets remain technically bearish even with this week’s decline in rates. Data next week will determine whether interest rates will swing to positive readings. I believe we will get the rally but my belief takes a back seat to the market activity and that remains negative. We need a close on the 10yr treasury note below 1.98%. Next week brings us the Jobs Report which is will be the last print before the Fed's quarterly statement in March. Volatility is highly possible leading up to the report. If you have low risk tolerance and need to lock in the next 30 days you should strongly consider it.