Mortgage Rates Continued Lower Today

Mortgage rates continued lower today as the US stock market got slapped hard again today - finally after watching global stock markets erode the US equity market is catching up to the fact that the US cannot stand on our own. We live in a global economy, eventually what happens in China does not stay in China (or other equity markets).

The Fed is still in play, the high majority of major Wall Street economists are still expecting the Fed to move a few weeks from now. The bust in US stocks over the last few days implies investors are going with the Wall Street view. There is not consensus though, a rate hike now, at least according the action in stocks it appears that investors believe the worst if the fed moves. I do not agree with that a 0.25% increase in the FF will not cause the economy to soften more than it already is. If the Fed moves in September the press conference from Yellen will be point on that the cut will not start a parade of hikes. One and done is what many believe when the Fed does move - and September seems to be too soon presently.  One other reason that the DJIA and S&P are now lower than at the first of the year, corporate earnings and guidance ahead is being re-thought that earnings will not match the numbers seen in Q1.

There are no data points on the calendar tomorrow.  The strong dollar is not quite as strong the last couple of days, the dollar index at the lowest in seven weeks. Currency traders selling dollars on belief the Fed will not move in September, and wait for more economic data before moving. Keeping an eye on Greece, although it is not a as much a factor than in the last couple of months.

I remain bullish and hold interest rates at the long end (10yr and MBSs) will decline more from these levels. That said, it is not likely to be a straight line lower in rates. Most of the move lower has been a direct reaction to global equity markets selling as investors seek safety for the moment. It has been a good trade the last couple of sessions but a huge move yesterday has too many becoming overly bullish in the very near term. Treasuries have the support to move lower with no inflation and no inflation likely in the near future.

In summary, recent economic measurements are not that good, and not that bad either. I expect the next week will be marked with high levels of volatility that so far has eluded us. The 10yr has the near term potential to run back to 2.18% where we now have good support - MBS prices if that occurs may decline back to 103.45 a drop of about 50 basis points from current levels. Best advice now is to not become overly bullish, keep it day to day if you are floating. I would be protecting these gains we have now if your closing is within 15 days.