Mortgage Rates Headed Higher Today

Mortgage rates continued heading higher at a fairly quick pace today, extending the move that began after yesterday's Fed Announcement.  Two thoughts on today’s huge increase in interest rates - one, after weeks of trying to drive rates lower and failing traders simply gave up holding a lot of treasuries; and secondly, markets now believe the Fed will increase rates in December. Either one of those thoughts are subject to change as data unfolds, and my thoughts are still the same – NO! The Fed wants to do it but as I have said all along, they are not all on the same page. The Federal Reserve is being degraded by its constant uncertainty and hindsight views, and markets are getting tired of it. They could have moved earlier this year but did not do such, and now the Fed needs solid confirmation from the US economy and so far that has not been good enough. Between now and Dec 15th we will have a couple of employment reports, and more important reports on the status of the economy, both domestic and global. Q3 GDP was better than the headline decline, declining inventories pushed growth down - remove inventories from the calculations Q3 growth was 3.0%.

The policy statement yesterday was vanilla, although as usual there are many that are trying to make a case either way about what the Fed is thinking. The only snippet that was a little different was less concern about global economies - once again the Fed spin got its intended effect. Getting markets to make a move ahead of the Fed so the Fed can simply confirm what markets already discount. That plan has failed in the past and likely will do so again.  It looks like we are going to ride a roller coaster for the next six weeks of ‘will they, or will they not’.

It is always a shock when markets move unexpectedly as we have in the bond and mortgage markets today. Let the dust settle for a few days before jumping to conclusions. The movements today may be more technical that based on fundamentals. That the 10yr failed to break its resistance finally generated a chain reaction - as the yield increased selling also increased as most technical indicators went from neutral to near term bearish. As I have stated many times before, it is the 10yr note that you must focus on - MBSs as well as most other interest rates are priced on treasury movements.  I have remained locked for the short term for nearly two weeks now - not because we put a lot of attention on MBS prices, but the 10yr note driver was flat-lining and not able to improve. Usually after a period of time that does not get the results markets tend to give up – and that is what we saw today.

In summary, mortgage rates climbed again today as the market continues to digest the Fed Policy statement.  Mortgage bonds were over bought for some time and a pullback was inevitable.  The question now is will it be temporary or long lasting.  My personal opinion is this sell will pass soon and we will revisit the rates which were available pre fed meeting in the coming weeks.    If you can stomach some pain you can attempt to float but do lock if you are risk adverse.