Mortgage Rates Continued Lower Today

Mortgage rates continued lower today, adding to an already impressive streak of improvement that began in mid-July.  Global commodity prices continue to decline led by crude oil. Inflation not yet on the radar other than the Fed keeps saying its 2.0% target is just around the corner. Obviously the Fed is looking at some other data than the rest of the world. In the meantime US interest rates have tumbled since last Wednesday’s close. In three sessions the yield on the 10yr note went from a high on Thursday of 2.32% to 2.17% this morning. Those who baked the cake with a September rate increase having difficulty eating it. Again, I stated it this morning and ever since the Spring, we will not see this happening in 2015.

Deflationary forces continue, as commodity prices decline the fear of inflation is waning quickly adding support to the lower interest rates since early July.   Crude oil is leading the way as much less demand than supply as global growth slows. Once an idea creeps into markets it is difficult to change it - the over-whelming belief is, and has been, that the fall in oil prices will save investors at the gas pump and it will result in increased consumer spending. So far nothing has been supported on that idea. Time to look at wages - the Fed has been over-joyed with the decline in unemployment headlines, only Janet Yellen continues to worry about the quality of jobs - lower incomes result in less spending and lower bullish expectations for improvements in stocks indexes.

July employment hits on Friday - usually a wild walk with most times a surprise. What traders and investors will focus most attention on is the average earnings. Especially given the Q2 employment cost index so soft. Next we will pay specific attention the labor participation rate that has been declining recently - less unemployed people looking for jobs. Finally, revisions from previous months are also key.

In summary, I have suggested cautiously floating for some time. The reason is that I put more emphasis on the treasury markets as leader for all other interest rates. Always walk in front of the horse - following it is missing what the horse sees. The 10yr note hit the first key technical resistance at 2.14% this morning, but here is the next wall to 2.10%. Breaking below that may take time and retracements heading into Friday’s employment data. I would not be surprised now to see prices decline in the MBS markets.