Mortgage Rates Improved as Oil Drops Again

Mortgage rates moved slightly lower today, recovering some of Friday's losses.  Stocks slipped today on a big decline in oil prices. The bond and mortgage markets, even though quiet, were positive that resulted in the rate movement.  It is anticipated that the markets will also be comparatively quiet again tomorrow ahead of Wednesday’s FOMC policy statement.

Earlier today the January Dallas Fed manufacturing index came in with negative numbers, and this on the heels from last week’s Philly Fed business index also was in minus readings from December.   Just about every Fed district has reported declines in their regional indexes. Tomorrow Richmond Fed will be out with its data and on Thursday, Kansas City Fed will report. The regional reports are not considered first tier data but these days any reports on the economy should be closely watched.

With regional Fed surveys softening quickly now, the FOMC policy statement on Wednesday all focus now is how the FOMC will frame it. Until now the last 18 months from the Fed was generally been upbeat - this time the Fed cannot fake it any longer. The question is will the FOMC admit the obvious, and to what extent? Expect the FOMC statement to lead markets to no rate increase in March as the Fed previously led markets to believe.

Most people are still expecting crude will decline from present levels and in turn push equity market around the world lower. Crude today back below $30.00, sending sellers attacking stocks once more. In morning trading stocks and bonds were very quiet but as crude selling increased so too the stock indexes fell. Not a huge move in treasuries or MBSs but weaker equity markets do support US interest rates.

Tomorrow Treasury will sell $26B in 2yr notes, along with the Case/Shiller for November, as you know does not get much attention. The November FHFA housing price index and Jan consumer confidence index also out tomorrow as the FOMC meeting gets underway.

In summary, mortgage bonds logged small gains today, as equities continued their slide on fears of contracting global economies.  Who knows where oil may end up, but the lower it goes, the greater the chances of continued low rates.  If treasuries could break (and stay below) 2.0% yield, I would feel better about this rally's staying power.   Absolutely nothing wrong with grabbing current pricing and taking risk off the table, but I would not be upset on a well-informed borrower from floating either.