Mortgage Rates Again With Little Change

Mortgage rates again did not move much today as we had another session with very little change -  that will likely be the case tomorrow also ahead of FOMC on Wednesday. No economic releases today except for the Dallas Fed business index as it improved but no one paid any attention to it. Tomorrow the Case/Shiller 20 city home price index is expected higher from January.   Unless you live in the 20 cities, do not put too much attention to this report as your city is likely to be different.

The more interesting data tomorrow is the Conference Board’s release of April consumer confidence index. The estimate is also expected to be higher. The measures of consumer confidence and sentiment index should not be seen as very significant. The two reports are more a reflection of what markets already know - the state of the economy. Consumers almost always vote the stock market, and these days the cost of energy. Equity markets moving higher, even with small investors still mostly on the sidelines; consumers are more optimistic, thus higher confidence and sentiment.

Treasury auction of 2 yr notes this afternoon  was not as strong as last month’s auction but better than the average of the last 12 auctions. Tomorrow of 5yr notes will be sold.  

Wednesday will have the FOMC policy statement. How will it be framed in terms of when interest rates will increase? Yellen has been solid in her comments that the Fed will make its first move based on incoming data. So far this year the economy has slowed in Q1, mostly because of winter weather. A few months ago markets and some FOMC members were tilting toward a June lift-off, now it has moved to September with increasing thoughts that the Fed will not tighten until next year. The Fed should wait as long as possible -  the economic outlook has improved in many longer range forecasts, but since last fall many measurements have failed to meet expectations from economists. Any increase in rates will keep the housing sector from expanding - the sector has fallen short on sales with rates at these lows. The Fed is in a box - inflation is not increasing and not near the Fed’s target and job growth remains slow with increases in wages. I do not expect the Fed to begin lifting off until at the earliest 2016. 

In conclusion, it is not likely that interest rate prices will improve tomorrow ahead of Wednesday’s FOMC policy statement. If the consensus take away from the statement is a September increase prices will likely decline on the initial reaction. No price improvements today, no change in the technical indicators that is neutral now. It will become a little clearer once markets can assess economic data for April and May, taking the weather rationale off the table. As I mentioned many times before, the 10yr and MBSs are in tight ranges now, and until the 10yr breaks below 1.86% or above 2.02% it is a toss-up each day on floating. I will not press the situation while in the current range, floating only when there are unrealized price gains from initial daily pricing.