Mortgage Rates Continue Upward Momentum

Mortgage rates continued their upward momentum today, rising to the highest levels since late September after Janet Yellen confirmed the Fed's rate hike outlook.  Bond markets began adjusting for that outlook last week after the Fed announcement.  Markets saw a roughly 1 in 3 chance of a December rate hike before that announcement, and better than 50 percent afterward. 

The combination of very strong ISM data and Yellen's comments today pressured MBS lower and under normal circumstances, MBS would have sold off a lot more than a piddly -16BPS, but we still have very strong support.

ISM Non-Manufacturing blew the doors off of expectations as the reading was very robust reading considering - anything above 50 is expansionary and it came in at 59.1 vs an estimated 56.5.  Also, this report represents 2/3 of our economic activity.  The other 1/3 (ISM Manufacturing) was barely above 50 this week. 

ADP Private Payrolls was basically in line with market expectations.  Not that it matters though.  Last time around, ADP was at 200K (now revised lower to 190K) and NFP report came in at 142K - so most traders are very  hesitant to use this report as a way to front-run the big data dump on Friday.

Trade Balance had the September reading very close to market expectations, and was not a factor in pricing today.

In summary, more of the same today, as pricing worsened yet again.  Chairwoman Yellen testified on Capitol Hill, and confirmed that the Fed is keen to raise their overnight rate in December.  While hiking short term rates may have little eventual impact on mortgage rates, for now the prospect is dampening demand for MBS.  I said it yesterday and it is still true today, the trend is not our friend.  Lock sooner and rest easier!