Mortgage Rates Recovered

Mortgage rates recovered yesterday's losses in many cases, and moved even lower in many other cases.  The mortgage sector was one of the tamer performances of the day when it comes to financial markets. 

When oil declines the stock market follows, when the stock market declines the interest rate markets follow. This week crude oil continued to decline after OPEC refused to cut production, the coming onset of Iran production, and yesterday the IEA saying oil prices are not likely to increase much in 2016 with larger than anticipated glut. Oil leads other commodity prices lower, the equity market originally gathered round the flag pole with the lemming-like view that lower oil prices would drive consumer spending higher. Stock indexes rallied, the dollar strengthened and the long end of the curve gyrated in a wide 15BPS range (10yr note). MBS markets also in their own sideway moves.

The Fed is finally in the act next week. The FOMC meeting begins Tuesday with the policy statement, Yellen’s press conference and the Fed’s quarterly economic forecasts for inflation and growth. If the Fed were to skip the expected increase it would be one of the biggest shocks to investors and money managers since 2008. The Fed won’t disappoint and will make the move the bank has been talking about for a year now. Inflation? If we have to endure it again in the policy statement just suck it up; Yellen will continue to tell us the decline in inflation and oil is “transitory”, a shame she won’t put a specific

Next week expect more volatility on Monday. After the decline in equities today if markets perform as they have recently stock indexes will be better and the bond and mortgage markets likely will see price declines. The 10yr yield today broke into new lows not seen since the end of October and all of our measurements turned from neutral to positive. Next week the Fed should make the move, but I noted today from some of the guests on CNBC that the Fed should wait with the present volatility - I call that talking up your positions that were torn up today.

In summary, what an unexpected surprise today has been.  Rates have rallied mainly due to oil moving lower.   With the FOMC announcement next week, lenders will definitely be very conservative with passing along any gains.  Locking might be the best call, but you could just float.  As always, only float if you can afford to be wrong.