Mortgage Rates - Float or Lock?

Both the October retail sales and October producer price index also lower than expected. Both should have bolstered the bond market but with the October employment report still the central focus we did not get much. The bond market is consolidating, no increases in rates this week but equally not a lot of interest in buying (except at the 10yr and 30yr auctions earlier this week) although the bond and mortgage markets are poised to rebound a little, that is a technical observation and does not line up well with the fundamental view that the Fed will increase the rate at the December FOMC meeting. We just had the September Business inventories report, which surprisingly showed an increase over what was to be expected, and the U. of Michigan consumer sentiment mid-month index came in a little better as well.

After the reports were digested, it again showed no inflation on the horizon. There are still a few Fed regional presidents out there believing inflation is about to increase as the Fed and other central banks are hoping for. It is not happening and we continue to believe inflation increases are way off on the horizon. The strong dollar dynamic contributes to disinflationary forces as the cost of imported goods drops and US companies lose pricing power.

In Europe slowing continues. Growth has now eased for the second straight quarter. The ECB is set to add more QE at its December meeting according to how we translate Mario Draghi’s recent comments.

Now the big questions – Float or Lock? Maybe we are seeing a “little retreat” that I have been mentioning this week – and it might be best to start to float this morning as we have the 10yr falling below the 2.30% mark to 2.28% at 10:00 AM this morning, along with a positive 22BPS uptick on the MBSs.  But remember, this could be short lived, and the markets are funny.  Keep your hand on the trigger if you have the stomach for it.