Mortgage Rates on a Roller Coaster Ride

What started out as a nice calm day with no economic reports to digest, the 10yr slid a few BPS’s to 2.08% and MBS’s opened in positive territory.  However, a small wrinkle came into play as Greece and EU have come to an extension of its debt for four months.  What happened was the chain broke and the roller coaster was adrift as it fell into negative territory.  As I have been noting for two weeks the US interest rate markets have been bearish, regardless of what is driving the bond market, known or unknown, price action is what is important. The US stock market turned quickly and key indexes rallied this afternoon. The bond market so far is still holding the key downtrend line, so although prices dropped it is not a serious sell-off.

Thankfully, the news of the Greek deal hit markets that were already in much stronger territory for the day.  That means that most lenders started out with lower rates this morning and although mid-day volatility led them to raise rates in the afternoon, it was only back to yesterday's levels. 

Where we go from here is a matter of debate and opinion until we see how next week two main events shapes up.  The first is not really an event.  Rather, it's simply the Monday deadline for Greece to hammer out some of the details of today's deal.  The other event is Fed Chair Yellen's congressional testimony where markets will refine expectations for Fed policy changes in the next few meetings.  We are still very much at risk in terms of the rate outlook and a lock bias still makes much better sense for almost any scenario.  Keep in mind that does not mean rates cannot improve, simply that I have not seen enough evidence for that to lower my defenses.

​In summary, what started out as a good day has quickly turned directions. Rumor of a Greek deal to stay in the EU has caused more selling pressure in bonds. The trend right now is not our friend. The benchmark 10yr note has bounced off resistance at 2.04% several times and until that resistance is broken, locking is the wise move as the risks is just too much to justify staying put.