Mortgage Rates Microscopic Changes

Mortgage rate drama has seen only microscopic changes from day to day, and they have canceled each other out over that time frame to boot!  In other words, there has been no net change in rates since the middle of November.  

The past three business days (since last Wednesday before Thanksgiving) have been especially calm.  The week began with weaker than anticipated data as the November Chicago purchasing manager went south as it was thought to be better.  It is a regional read but still somewhat important. Tomorrow the national ISM manufacturing index will trump the Chicago index, it is expected to be above 50, but if it falls below that number – we are seeing some contradictions in the data.  Both of these are key numbers, but everyone’s focus is on this Friday’s Job Report.

The treasury markets were flat today but there was more slight improvement in MBS markets.  The 10yr note has heavy resistance at 2.20%, and continues to back off anytime it is tested. MBS prices have slowly increased every day but two since November 12th, inch by inch with no daily large price moves.

Markets are focusing this week on Janet Yellen’s two appearances.  She speaks Wednesday to the Economic Club of Washington. She will also testify on Capitol Hill Thursday before the Joint Economic Committee, where lawmakers will likely try to pin her down further on the Fed’s interest-rate plans. Do not expect her to go out on any limb with responses to the future of interest rates - the Fed like markets is driven by inflation outlooks and economic performance. Friday is the November employment report, and she is not likely to allow herself to be boxed in with anything new. Beside Yellen the week is full of Fed speeches, just more of the same with a lot of air and no substance.

In summary, MBSs looking better than the bellwether 10yr note. The note, as mentioned numerous times is stymied at 2.20% and has found solid resistance at that level. Meanwhile MBS prices are slowly improving.  Normally we would focus more on the 10 in terms of floating. The FNMA 30yr 3.5 coupon has improved 11BPS since last week and the 10yr is supported by the divergence coming between the Fed increasing rates and the Fed lowering them.