Mortgage Rates Up After Increase Last Week

Mortgage rates continued slightly higher today, after hitting 1-month highs late last week.  Stocks did well today, the bond and mortgage markets slightly weaker but generally quiet.

It is unlikely the bond and mortgage markets will change much now through the rest of the week with employment out on Friday. The Fed is still on the table but certainly not a sure thing. The sense is the Fed is being pushed into a corner with the continual threat of increasing the FF rate to still anemic 0.375% as if that will either end the world or send it into the stratosphere as indicating inflation is increasing and the global economy will rebound soon. It has been a year since the Fed started its drum beat, yet nothing but ‘we are thinking about it’ and ‘ it depends on the incoming data’. The incoming data in Q2 was there but the Fed did not move - now global economies are slowing but in the policy statement the FOMC took a position that it was not going to put much consideration on the potential global impact on the US. All of that said, markets still left wondering and pontificating on when.

The bond and mortgage markets no longer hold technical bullish bias’. After three weeks of trying the 10yr could not crack 2.00%, finally the FOMC policy statement last week broke the bullish near term bias and rates have increased. October was the first month this year that treasury rates were higher than previous months. We don’t expect rates will increase substantially this year but equally we are not expecting rates will now decline much into the end of the year. A new drag on rates, the data released today on manufacturing improvement in Europe - not huge but not falling. Between now and December 16th any improved reports from China, Europe or emerging markets will increase the Fed’s intent to increase rates at this meeting.

Friday is a critical day, a weaker than expected employment report will improve the bond and mortgage markets but a better report will push yields even higher. MBS prices holding week at the moment compared to treasuries as investors dump treasuries but so far not hitting all other rate markets as much.

In summary, a very busy week for economic data culminating with the non-farm payrolls report on Friday.   It is always risky to float through NFP.   Looking at past months, rates tend to worsen heading into the report.  I think you might be safe to float overnight but if you plan to lock before NFP, then tomorrow might be your last chance.   MBS have rallied off the lows of the day, not quite enough to justify a reprice for the better.