Did Mortgage Rates Improve?

Think interest rates increased this week and MBS prices dumped? Most likely you would think so, but that was not the case. It is the same pattern we had the week before, all the angst and hand-wringing amounted to nothing in the end. The week ended with the 10yr declining only 1BPS from last Friday and MBS declined just 25BPS. 

Numerous times I have noted that looking at markets on a week-to-week basis puts a different perspective on things. Take now the last two weeks and you have the 10yr note unchanged and the MBS pricing down a total of 22BPS.   This is what we call a definition of volatility that has infected markets the last month. We deal with daily swings that have been excessive recently but at the end of two weeks the bond and mortgage markets have seen no changes. The extreme volatility recently has traders on edge and economists and analysts - and mortgage lenders - twisted like that proverbial spring.

So what is up? Most comments I have read or heard have made their case that rates are increasing because the Fed will increase rates soon as the economic outlook in their view is going to improve substantially as the year progress and inflation is going to climb to 2.0% quickly. I do not and have not gotten on that bus yet, and if you read my report from several days ago, I said I was in the minority that I still do not feel the Feds will raise rates this year, even though the sentiment is now leaning towards September. 

April data hitting daily now and most is weaker than economists and lemmings thought. Right now there is more emphasis on the decline in the dollar versus the euro currency and the yen. Mostly though, there is little confidence in either economic outlook - thus volatility interday and intraday, but week to week, nothing has changed since the beginning of May. The US economy is slowing, no growth in the first half of this year.

In summary, we did have a nice rally for a few days after getting hit hard and losing substantial ground.  While economic data of late has been less than stellar, I still do not trust this short term rally and I would be locking up anything closing in the short and maybe even medium term.  For anything closing beyond 20-30 days, if you choose to try and wait for better pricing, I would do so very cautiously.