Mortgage Rates Crushed Today

Mortgage rates were crushed today, moving higher at the fastest single-day pace since 2013.  US financial markets were slaughtered today. Mario Draghi do as much as he was expected to do, did cut the deposit rate – but he did not increase the amount of asset purchases. Markets extremely disappointed, being too optimistic about what the ECB would actually do.

Here we go - in two directions - the ECB easing while the Fed is going to increase US FF rate.  The magnitude of today’s selling suggests there was too much optimism in equities and in the bond markets on more stimulus from the ECB and the continuation of the dollar’s strength. When markets react as they did today the initial thoughts become confusing - it will take a week or more now to settle things down in financial markets. One thing that comes to mind is that markets were so invested in bonds and stocks that as selling increased margin calls were triggered and that added to additional movement - traders and investors being squeezed out with little choice.

Admittedly I did not see it coming, nor did anyone else see it either. Yesterday I questioned my lock advice as I was marginally bullish but thought the risk was not too high to stay long with the Fed looming. The markets totally caught off guard by the lack of stimulusfrom the ECB appears to be the trigger.

How high rates will increase is not worth speculating now. Let it settle - likely the movements today are over-exaggerated but betting on it is a fool’s errand. Global selling of US assets driven by the dollar’s collapse today - there is still little inflation on the near horizon and a lot of detail due out tomorrow with the employment data. Since it was mostly the ECB lack of action today that triggered tis route, Draghi will speak again tomorrow - maybe he will try to alleviate the huge movements today.

In summary, so what now? On the day before the critical Jobs Report for December and in a month where it's likely the Fed starts to hike rates, we get the worst day for bonds since 2013.  Is it an ominous precursor to the near term future or just a short term bump in the road?  I would not be rolling the dice here and I think locking your rate is the prudent move until we get a convincing indication otherwise.