Mortgage Rates Going Backwards

Mortgage rates have not seen the lows quoted today since the last week of May.  After a delightful, but incredibly boring streak of mostly good days, rates finally swung for the fences.  Actually, that might be a bit of a stretch depending on your perspective, but consider the following.

This morning's Employment Cost Index came out of left field with sobering news for anyone counting on a 2015 Fed Rate hike.  Fed Fund Futures (which measure the likelihood of a hike by a certain time frame) went fairly wild after the report.  Beforehand, they'd indicated the highest likelihood of a 2015 hike in more than a month and a half.  Less than 30 minutes later, they showed the lowest chances of a 2015 hike in several weeks.  Only the few weeks during the apex of the Greek drama saw less of a chance.

The Q2 employment cost index set a new low record for increase going back to 1982. There were some voices calling it old data and do not pay much attention to it. Well, here is the thing, every piece of economic data reported each month is old data - there is no such thing as future data. It is what it is and it adds much more to the deflating commodity prices and declines in most every global equity market.

Inflation improvement is not happening, in fact it is worsening. Global economies slowing, China losing its grip, Europe slowing and dealing with Greece, the IMF and the World Bank have asked Yellen to keep from increasing interest rates.  The Fed wants 2.0%, the likelihood of that this year is not likely. Fedspeak continues to amaze.  Let’s get it clear - the Fed and its regional Presidents have never faced this kind of situation and have absolutely nothing to base their comments - furthermore no other central bank does either. The growth of the US economy is the slowest out of a recession since the beginning of the 20th century - and now globally growth is slowing more.

Next week will be more volatile than this one as it is Jobs Report Week, but there is a lot of data that will come out before the big report next Friday.

In conclusion, the 10yr at 2.20% sits on a chart resistance level but after the moves today the bullish bias has improved. I have moved off my lock bias and have moved to cautiously float and will more than likely continue when Monday begins.  Although we have managed nice gains the bond market is not set for a straight down move in rates.  At these low levels to continue to improve the market must be fed with weaker data and increased reasons to head for the sidelines into treasuries. The point being, do not marry the continued outlook for lower rates, be prepared to take gains and lock in mortgage rates. The pivot to jump is and if the 10yr goes back above 2.30%. With the data next week expect more interday volatility.