What A Week For Mortgage Rates

What a week for Mortgage Rates.  Once the support levels broke on the 10yr and MBSs there has been massive selling.  The main reasons were because the economic outlook has improved and markets are less concerned about the Greek debt crisis. As you know markets have been fretting since the beginning of the year that the Fed will begin increasing rates this year. A few, and I was not one, did not expect the Fed would move until early next year, but with the sentiment has been wavering on my estimate that when Q2 GDP would begin to show growth and continue to increase the rest of the year as it did in 2014, maybe I might have to move my estimate with the others to September.  The data, regardless of who is talking, has improved - yesterday the head of the IMF commented that the Fed should wait until next year. Today the employment report trumped all of those outlooks. I continue to caution though, the economic outlook is a moving target and there is no assurance that consumers will begin to spend or that the global economies will begin to improve. The Fed does have to consider the global implications when deciding when to begin - ; that is what IMF’s Lagarde was getting at about the Fed holding off until next year, and I am still with him on this.

Now expect another new trading range to develop over the next few weeks, between 2.44% and 2.25% for the 10yr, MBSs in a 140 basis point trading range. What we have seen thus far is a compilation of all the bonds that were being held based on the Greek issues, very weak Q1 economic reports and a negative outlook for Q2 growth. Still concerns exist in all areas but excess positions were unwound rapidly this week. Volatility in both stocks and interest rates is going remain at extreme levels for quite a long time now as every data point will carry increased significance.

Next week economic data occurs later in the week with May retail sales, May PPI, April business inventories, and preliminary June U. of Michigan consumer sentiment index. There is not much next week on data. Supply next week - Treasury will sell $24B of 3yr notes, $21B of 10yr notes re-opening the note issued last month, and $13B of 30yr bonds also re-opening the 30 issued last month. After this week’s hammering the demand will carry increased significance. Then there is the Greek tragedy; expect more confusing reports from the region from Greece officials, EU officials the ECB and the IMF.

In summary, expect increased volatility next week.  Use any price improvements to complete deals. There is no reason to expect a sustained rally next week. Lower rates will have to have a major market shock to turn this bear around. The stock market will be choppy. Because the following week (June 16 and 17) the FOMC meets, there will be no Fed officials talking next week.