Mortgage Rates Increased A Little This Week

Mortgage rates increased somewhat this week, as the 10yr tested the key support at 2.00%. There was not much data this week - and what there was was about what markets were expecting. IMS services sector index on Monday and weekly jobless claims yesterday. The FOMC minutes released Wednesday did not add anything to the drum beat of higher rates coming. The big downer for prices this week came from the three Treasury auctions that had less demand than previous 3yr, 10yr and 20yr auctions last month and the last 12 auction averages. “The week began with a reverse-bang: last Friday’s payroll report was distinctly weak, and rates fell a lot that day, but on Monday morning markets immediately un-did themselves. Right back to where they were -- mortgages in the high threes, the 10-year T-note just under 2.00%.

That trading is a clear sign that the bond market is gradually awakening from denial. The Fed is coming. This week the Fed released minutes of its March 17-18 meeting, which were widely described as “divided.”  No, they are not. They are in complete agreement - the Fed will lift of from 0% this year unless the economy swoons.  When is the question, as some say by late summer and some (of us) are saying not now till 2016. 

The part of the economy most vulnerable to liftoff is of course - Housing.  It is possible that the extraordinary bond-buying QE by foreign central banks will hold down US long term rates even as the Fed raises the overnight cost of money. Very low inflation and oil prices may have the same effect. But we have to address the central question: is housing strong enough to withstand higher mortgage rates? The question is a big deal -- last year despite all contrary forecasts, mortgage rates fell back into the threes, and housing still did not ignite. Just stumbling forward, under performing nearly all forecasts”….. 

The bullish bias for interest rates is losing momentum. The 10yr at 1.96% has to hold at 2.00% otherwise our work will turn bearish for the first time since March 16th.

In summary, it was pretty sedate in the world of rates today.  We posted slight gains as of mid-day.  Boring is not always bad, it is nice to be able to quote a rate in the morning and have it still be valid 7 hours later, but we cannot get complacent.  Barring any international drama over the weekend, Monday looks quiet too.  If you are continuing to float, just be mindful of the risks.