Mortgage Rates Moved Slightly Higher Today

Mortgage rates moved only moderately higher today, but it was enough to bring them to April's worst levels.  The bond market trading that underlies interest rates in the US has been an increasingly volatile place.  This has made for more frequent medium-sized moves in both directions.  Unlike some of the simpler periods of time in the past where economic data determined the trading direction for the day, the current situation puts more emphasis on trading itself as a source of inspiration.

Treasury sold $58B of notes and bonds this week, none were well bid but the 10yr and 3yr had better bidding than today’s very weak $13B 30yr offering.  The auction today was one of the worst for over a year. The EU and China’s economies are rising from their multi-year comas. Economic data in the EU is a mixed picture as we have here in the US, but with the ECB QE the Europe equity markets are rallying - money taking a stab at the low values on bets Europe will begin to improve. China central bank also opening lending to stimulate the disaster in the housing sector in the country.

The action today did some damage to our bullish models and moving averages. The 10yr closed at 1.96% and is testing its 20 day average, its 40 day is at 1.99%. A break above 2.00% will run the yield to 2.05% to test the 100 day average, the average that has turned the 10yr around since May 2014 (although each time it exceed the 100 for a few days). When will the Fed move? Still a toss-up for stocks and bonds with differing views almost daily depending on what Fed official is talking. There was a time (prior to the financial collapse of 2008) when the Fed and Fed presidents hardly got any attention - back in the day (prior to 2000) when the only trading motivated by the Fed was on Thursday afternoon when weekly money supply would be released. History is not the “new normal”, just day dreaming of the good old days.

In summary, MBS markets endured a weak 30yr bond auction today, and trended slightly higher.  I am seeing more change in the pricing for any given rate, than rate changes themselves.  We are still hanging around prior rate ranges, but momentum is not our friend at the moment.  I cannot fault anyone who chooses to lock now, given MBS' recent weakness.  It might just be the best play right now.