Mortgage Rates Decline

Mortgage rates were at their all-time highs – however, let’s not get too excited with today’s price gains and rate decline - it is more just position squaring and profit-taking by traders. Nothing has changed fundamentally and with next week’s FOMC meeting beginning on Tuesday traders (the group whose time frames are measured in days). Nevertheless the improvement today does allow some deals to get locked, but the usual response is, ‘tomorrow will be even better’; could be but until the 10yr note can close below 2.33% (2.38% now) the markets remain bearish.

This morning’s May retail sales report was better than forecasts, when additional selling did not materialize immediately, but additional improvements developed through the morning. Then came the 30yr bond auction and more price gains to take MBS prices back to the close on Monday. Volatility as I have said many times recently will continue to be very high.

The Pope in a meeting with Putin chided him to make peace with Ukraine. The Pope should focus some attention on his neighbors in Europe - get the Greeks, the IMF, EU, ECB, EC and all other initials into the chapel. Lock the doors and do not let them out until he sees white smoke coming through the chimney. This morning the news was that last night's meeting between Germany and Greece did not end in success, but Germany blinked a little reportedly agreeing to allow reforms to be staggered over a longer time frame. Now Germany is now denying Wednesday's rumor that it would be willing to let Greece do reforms in step-wise fashion.

In summary, mortgage bonds rallied today and got an extra boost from the strong treasury auction. Tomorrow does bring some market moving data which could help or hurt pricing. However, do keep what happened today in perspective as these price gains have no longer term significance. Nice to see but not really unexpected after the huge increase in rates and declines in prices. Use these improvements as the future is still a bit cloudy to determine which way this is going.