Mortgage Rates Volatile

Mortgage rates moved moderately higher today as we saw more selling today in the mortgage and treasury markets.   The stock indexes were choppy but in a much narrower range than we have seen recently. The only data today, the Chicago purchasing managers’ index was right on the estimates. This morning the 10yr note yield dropped to 2.14% but it did not hold and now at 2.21%, with MBS following suit ending at negative numbers.  

Tomorrow the August ISM manufacturing index is one of the key reports the Fed will watch in the on-going uncertainty about what the Fed will do on September 17th. Unless main tier data between on and then are stronger than estimates and the stock market volatility ebbs, the Fed is unlikely to move. But we do not see the Fed’s decision whether now or in December to be much of a market mover. It is baked in the cake for the most part and investors and traders have had months to think about it. Some would like the Fed to do it now, and end this daily humdrum of will they or will not - getting boring and causing increased volatility. Whether the Fed moves now or in December or next year - the global economy is weakening and will continue to soften, the best the US can expect is marking time. If the US economy can maintain a 2.0% growth we believe that a victory for the economy.

It is very unlikely the bond and mortgage markets will improve this week. The only potential will be on Friday with the August employment report, but it would take a huge miss to improve rate levels now. A huge miss will add more thoughts the Fed is not likely to move and likely send rate markets lower in yields. The bullish technical models are now turning negative, anymore selling tomorrow and all of the work will turn bearish for the first time since mid-August.

In summary, as Fed rate hike talk picks up during a week that ends with the Jobs Report (our most important and potentially market moving economic report) I would be quite cautious. Risk has increased in my opinion so I would be locking at application most loans unless the time frame to closing was extended out past 30 days. Certainly we have room to move lower if the cards break in our favor but risk of floating far outweighs the certainty of locking at this point.