Mortgage Rates Settle Down

Mortgage rates avoided any further damage today after moving to the highest levels in a month yesterday.  The past two days made for the sharpest increase in rates since late August before settling down.

Once again the FOMC meeting did its usual job by roiling markets and continued the debate over when the Fed will have the stomach to increase rates, or when the Fed will succumb to the reality global economies are slowing. One can make a good argument that the US economy is doing OK and can argue that the global slowing has ebbed, but to do so one has to ignore or dismiss the global data. Globally central banks are providing increasing support, the ECB is thought to be ready to add more stimulus, China continues to cut rates and lessen bank regulations, emerging markets following as fast as they can to keep their economies from further erosion. In the meantime the US is thinking about tightening, although a 0.25% increase in bank rates is not much, if the fed does make a move in December the dollar is sure to strengthen, commodities will decline pushing inflation further away from the Fed’s target.

The recent bump up in rates was set up technically with investors and traders balking at buying treasuries (the 10yr) when its yield sat at 2.00% for most of the last three weeks, gyrating in a very narrow range. Either the bond market was going to break into a nice decline in rates or, as it turned out traders were going to cover those long positions as it sent the 10yr yield up 14BPS and MBSs down 69BPS.

A big data week next week as we have October employment data headlines. Both October ISM indexes - September factory orders, this week September durable goods orders declined 1.2%; construction spending, October auto and truck sales consumer credit - are the highlights. Also next week after a week off, Fed officials will be back, further adding to the market angst.

In summary, today’s weak inflation data helped to stop the bleeding in mortgage bonds and they were able to mount a rally.  Today being month end it is hard to rely on technicals and the charts but if we have another up day on Monday we could be in could shape moving forward.   I am still indecisive on what to do till then, but all we can do is wait and see what transpires early Monday morning.