Mortgage Rates - Better Start This Morning

Mortgage rates are seeing a better start this morning. The three reports early this morning came in as expected - May retail sales, May import and export prices, as well as Weekly Job Claims.   

Last night's meeting between Germany and did not end in success, but Germany blinked a little reportedly agreeing to allow reforms to be staggered over a longer time frame. Based on what I am reading, there is increased optimism that something will get done. Would not bet much on it soon. The entire mess has until the end of June to get something accomplished, likely the parties will take all that time to reach another patch work deal.

Just reported were April business inventories, doubled expectations which is more positive data for Q2. At Noon, the Treasury will sell $13B of 30yr bonds completing this week’s borrowing. Yesterday’s 10yr auction did meet with decent demand.

Currently at 10:00AM, we have the 10yr at 2.44% and the MBSs showing a positive 35 BPS run.

As you know I said the 10yr would likely find support at 2.50%, yesterday the 10yr closed at 2.49%, this morning at 2.44%. I am anticipating that the 10yr will hold around this until next week’s FOMC meeting. Whether there is a substantive improvement in rates will depend on how Yellen and her FOMC team mates formulate the policy statement and what she says at her press conference after the meeting. (Next Tuesday and Wednesday). Although I expected the 10yr would hold here the basis for that is that the rate markets have over-run current reality - too strong of selling in the short period of time. I am not turning bullish on rates, just expecting a technical retracement. The 10yr note will have to drop below 2.33% to tempt me to become bullish. And for you folks that follow other analysts that argue MBSs move on their own path, mortgage rates move in tandem with the 10yr note because treasuries are the benchmark for all interest rates, best to focus on the leader rather than the follower.