Mortgage Rates Improve

Mortgage rates hit their highest levels in 2015 on Friday, but after the news over the weekend out of Europe about Greece – there is no doubt that Greece is going to default tomorrow on its debt payment to the IMF – we saw the mortgage bonds improve significantly today. 

Greece closed their banks for the week, rattling global markets - now news that Porto Rico calling for concessions from the island’s creditors in order to stave off a cash crunch. China cutting interest rates yet its equity markets continue to cave. There is lots of uncertainty around the world.

Presently it is not good to be in equity markets - not necessarily bad yet but when we look around the world, from the mid-east to Europe to the US and to Asia economies just are not living up to the levels equity markets have discounted in current levels. Now Porto Rico needs financial help. As of the end of today the US key three indexes have not improved this year, our market is becoming tenuous - the S&P is actually lower now than at the beginning of the year.

The drop in US stocks today did not look like panic, just uncertainty. How this all unfolds does keep traders edgy. As far as I am concerned, the optimism for the US equity market is too much. A good market rally climbs the wall of worry daily, our markets generally have hung on to the view that as long as the Fed keeps rates at zero then investors have to be in equities, that overwhelming sentiment may be about to change – I cannot say when (wish I could), just that I will not be shocked when the indexes drop 10% to 20%.

A big rate decline today taking the bellwether 10yr back close to its resistance level at 2.30%, MBSs in the same technical shape, bearish. US markets continue to follow how markets traded in Europe - we are not setting the pace, Europe leads an uncertain path and the rest of the world marches in lock-step.

In summary, coming into this week, we knew it would be volatile, and the volatility likely is not over.  Any time there is such a forceful move toward lower rates, it is tempting to look at it as a bigger-picture turning point.  While it may turn out to be just that, it is not something that we can safely bet on after only one, or even two days of improvements.  European market drama will not be resolved this week, and even the first phase of it will not be resolved by tomorrow.  From there, we have several other significant events happening in the following 2 days that could add significantly to the fast-paced movement.