Mortgage Rates Causing a Stir

Mortgage rates managed to hold their ground for the most part today.  This was good to see considering that the broader bond market had a tougher time.  The stock market is the only game in town and this of course is not rigged, but the day is coming when people will scream foul louder than they did in 2008.  Everything spins from it - the interest markets welded at the hip these days - stocks rally interest rate prices decline, stocks drop rate prices increase. Getting the equity markets to sustain any declines since the FOMC meeting and recent conclusions that the Fed will not increase rates this year has been futile and keeps the bond and mortgage markets completely subject to the whims of investors.

Today stock indexes improved, yesterday they declined.  Today MBS prices lower, yesterday higher. More weak data today, but who cares at the moment. The Philly Fed business index was better than last month on the headline but the index lower than expected. The media as usually does not look past headlines, but the components were worse than the headline. The employment component dropped significantly, and the new orders component dropped as well.

Tomorrow more key data the stock market may ignore – again!  September industrial production and factory usage, along with the mid-month U. of Michigan consumer sentiment index. So far reported earnings have been soft, but nothing matters now but pouring money into a bubbled up stock market. The chances of a Federal Reserve interest-rate increase in 2015 are diminishing amid new signs of anemic economic activity. The economy slowing, back in the day the stock market would be declining, it is only a matter of weeks or months before the psychology will change.

I have said this several time recently, and it still may happen in the wider outlook - I expect interest rates will decline more from current levels. It will be fueled by massive equity market selling. The current improvement in stocks is a bounce off the drops in August and September, the last gasp? The short term view is bullish, the longer term even more bullish - however as long as equities are favored by investors and money managers and hedge funds it is not likely the bellwether 10yr note yield will decline much, keeping mortgage rates from declining.

In summary, despite a little selling today in bonds, I am saw rates slightly better than yesterday.  Anytime we gain pricing, consumers that have been floating should look into locking in the gains.  I am not too worried that bonds will continue to sell off as the benchmark 10yr is still holding around 2.00% - but I am not going to change my stance as I continue to say that it is best to lock in today’s rates if you are closing in the next 15 days.