Mortgage Rates Continued Lower

Mortgage rates continued lower today, largely getting caught up with yesterday's underlying market movements.  Stocks exploded today, and the rate markets at one point earlier this afternoon improved before the small retreat at the end of the day. The 10yr note yield fell to 2.01%, MBS prices improved as well overall.   This morning Mario Draghi hinted at more QE in December, that is all markets needed to rally - especially equity markets. Equities will rally on any sniff of more central bank market manipulation - and I mean manipulation. Since the financial collapse in 2008 the global markets have been ‘managed’ by central banks and less on economic measurements.

Another prop today came when Treasury announced it would not auction 2yr notes next week because of the debt ceiling getting closer. The 5yr and 7yr auctions will take place. Here we go again, here comes the politics with the debt ceiling that is thought to hit in early November.

The bond and mortgage markets likely would have done better today on Draghi’s comments this morning but with stock indexes running up, no incentive. And the 10yr note just cannot fall below 2.00% - yet. It is coming though as I still hold interest rates will decline before the end of the year, but as I always say, talk is cheap and we are not about to put our money where my mouth is yet. Have to respect the market as it is currently but our guns are loaded and ready to fire.

No scheduled data tomorrow.  Next week the FOMC meeting is closing in. Oh, how will the fumbling Fed paint the picture? More importantly will markets care, the media gets all worked up but as each FOMC meeting passes the Fed is increasingly seen as confused and disorderly. Hearing snippets out there that Yellen is losing control. Call it frustration.

In summary, as many expected, the ECB hinted at further economic stimulus amid stagnant prices today, and bonds benefited but only to a point.  We are near the very bottom of a well-established rate range, and it appears we will need major motivation to breach these levels.  While I expect next week's Fed Statement to be typically obtuse, there certainly are no signs of domestic inflation looming.  I may not see huge rate improvements in the short term, but at least rates do not seem poised to rise substantially either.  Even though it is tempting, I am still stating to lock short term.