Mortgage Rates Went on a Roller Coaster Ride Today

Mortgage rates started off the day strong, but just like a roller coaster, it went down fast after the Treasury auction numbers were released. This morning the bellwether 10yr note yield dropped to 2.08% from 2.15% yesterday with MBS prices this morning up 23BPS. It all reversed this afternoon when the stock indexes recovered a little, the 10yr closed at 2.13%.  The markets seemed to be waiting for Janet Yellen’s speech on monetary policy and inflation. But as I mentioned before, she will not take questions so what she says is what markets will get.

Yellen is unlikely to use her speech to hint at when the U.S. central bank plans to raise interest rates, economists predict. Yellen said last week U.S. central bankers wanted “a little bit more time” given the crosscurrents that have emerged since China devalued its currency in mid-August. Talking about inflation and monetary policy will not shed anything new from her remarks last week at her press conference Thursday.

Tomorrow the final Q2 GDP data along with the final U. of Michigan consumer sentiment index. 

I recommended to float today as it started to be the right decision, but by the end of the day I was wondering why I was doing it. The techs are all bullish but the absolute movement in treasuries and MBSs have not been able to hold intraday gains. Looking at it from a trading point of view there is a lot of resistance laying under the bond and mortgage markets now. Floating has not hurt us but it has not helped that much either. Accepting risk with no reward is dangerous - three things can happen, two are not good. Prices can increase (good), prices can drop (obviously bad, prices can remain the same also not the best when taking on risk. All that said, we still believe rates have the potential to move lower on treasuries but MBSs may be left behind. A week ago yesterday the 10yr note yield at 2.30% on its high, this morning at 2.08% (six sessions); MBS prices in that time increased 68BPS, all on last Thursday and Friday, the rate declined 7 bps, all on Thursday and Friday.

In summary, testing the lower threshold of the recent range, but no new break out of the broader range.  I would advise locking into these dips.  Until we see a move lower below the recent trend I would take what the market gives us.  Pricing today was very attractive, floating is not warranted unless you have time to kill.  I am a believer that we more than likely will go lower, the question is what type of market gyrations will occur in between.  Lock 'em if you got 'em."