Mortgage Rates Have a Wild Ride

Mortgage rates had a wild ride today.  Underlying bond markets were significantly weaker leading up to the afternoon's Fed events. Prior to the 2:00 Statement the 10yr note yield increased 8BPS today and MBS prices were down 43BPS from yesterday’s close. 15 minutes after the Statement the 10yr up just 1BPS and MBS prices were down just 5BPS. The Statement made no direct reference about when the Fed would begin increasing rates. Likely though markets will continue to look to September for the first increase; a few members want two increases this year. Price volatility continued leading into Janet Yellen’s press conference. The Committee wants better labor market conditions and more certainty that inflation is moving up toward the Fed’s 2.0% target. The Fed’s forecast for inflation to reach 2.0% is not expected until 2017.

Yellen in the press conference said economic conditions presently do not warrant an increase in the Fed funds rate. Low inflation due to low energy prices and low import prices (strong dollar). She changed the phrase a little, but she refrained that the FOMC will continue data dependent for decisions - nothing new there. Then the Q&A; in an answer to why the members believe a rate increase is coming in September she essentially went right to ‘data dependent’ as the real timing, not comments from members.

Now that the FOMC is behind markets, attention will return to the Greek problems. The next meeting of finance ministers is tomorrow. Greece has ignored European pleas to submit a new proposal to avert insolvency, saying it was up to creditors to make the next move. The lenders say it’s the other way around. Nothing new today those markets have to think about while it looks increasingly likely that Greece will default and possibly leave the EU.

Tomorrow we have weekly claims, May CPI, and the June Philly Fed business index. There are no data points on Friday but it is quadruple witching as contracts and options expire.

In summary, it was one of the most volatile two way trades we have seen in quite a while. What it means is that for all the talk and all the editorials uncertainty runs at extreme levels. The Fed did not have anything to say compared to what most were expecting. The rate hike(s) when they do happen will likely be a yawner. Since Central Banks took control of economies in 2009 all those history lessons that economists turn.