Mortgage Rates Moved Higher

Mortgage rates moved substantially higher today in the context of recent day-to-day changes. Government bonds in the U.S., Germany and the U.K. pulled back today as global stocks and commodities strengthened, sapping demand for financial assets deemed relatively safer. The surprisingly soft September employment report casting doubt over the likelihood the Federal Reserve will raise interest rates before the end of the year. Investors and money managers looking for deals after the decline in stocks over the last quarter. For the moment markets are pushing the FF rate hike off until next year - it is as Yellen says, data dependent and September jobs were very disappointing. Another support today - China’s markets are closed until Thursday, taking that situation to the back of the line for the moment.

Nothing has changed - emerging markets continuing to decline, China leading the way. What has changed recently is that stock markets rally on negative economic news because it pushes the Fed rate expectations back down the calendar. Stronger equities remove the safety moves to safer assets (bonds). How long that can last is debatable, eventually weaker economic outlooks if they continue will drive stock market lower and support continued low rates. These days though it is a scramble for money managers to find opportunities, regardless of the longer term views of global slowing. There are a number of ways to look at it, one consideration is that at the present low level of interest rates it will take a lot of negativity to keep rates declining.

A little more support for no Fed rate increase soon as the September ISM index was slightly lower than expected this morning - not a big deal but tied to the September employment report Friday it helped equity markets. The report this morning is the most important this week, a week with little data on the calendar.  

Tomorrow the only domestic report, August US trade deficit and the Treasury will auction $24B of 3yr notes at noon tomorrow.

In summary, this week brings treasury auctions and with that additional risk with floating.  We are at overbought levels with both treasury prices and mortgage backed securities.  I am not saying rates cannot continue to improve but odds favor rates moving up in the sort run versus dropping.  Right now, I am suggesting those to lock at these great rates, but if you want to live dangerously and float, do so with caution.