Mortgage Rates Flat

Mortgage rates managed a fairly uneventful day despite the presence of some bigger-ticket events.  Actually, those events turned out to be the reason that things did not move much. In a week with little data, this afternoon the March FOMC minutes were released. Summing, nothing new came from the details.  Officials were divided at their last policy meeting on whether they would be ready by June to begin raising short-term interest rates. Several believe June is the time, others think it best to wait for more confirmation that the economy is on solid footing. This meeting occurred two weeks before the March employment data showed a substantial decline in new job creation.  

Several participants judged that the economic data and outlook were likely to warrant beginning normalization at the June meeting – while others anticipated that the effects of energy price declines and the dollar’s appreciation would continue to weigh on inflation in the near term, suggesting that conditions likely would not be appropriate to begin raising rates until later in the year, and a couple of participants suggested that the economic outlook likely would not call for liftoff until 2016.  These minutes, in this case, are old news.

When it comes to mortgage rates, it's important to remember that the Fed rate hike doesn't directly correlate.  The Fed Funds Rate informs the shortest term borrowing (overnight), while the average mortgage lasts about 7 years.   The farther down that continuum of time frames we go, the less connected rates are to a Fed hike.  As such, it's not some epic bogeyman to be feared as the harbinger of an irreversible rise in rates.  That said, when the Fed does hike, it is also a signal that they are reducing accommodation in general.  The next step in that process would be to stop reinvesting its holdings in mortgage-backed securities, and that would certainly impact rates.  That's a bridge to be crossed when and if we come to it.

This afternoon’s 10yr note auction was about normal, once again a Goldilocks auction, not hot-not cool.  Tomorrow weekly claims, finally a data point we can get our teeth into - expectations are for an increase after last week’s huge decline.  Also February wholesale inventories will report as well. 

In summary, today's 10yr bond auction was well received and the FOMC minutes did not offer any bad surprises.  Unless you must lock today to make a closing, I would hold off until after tomorrow.  I am hopeful that we have a rally once the new supply of treasuries have been absorbed by the markets.  Even if we do not, just holding at current levels should allow us to offer better pricing – but we shall see.