Mortgage Rates Stopped Improving Today

Mortgage rates stopped improving today as we had a slight pullback on the improvements we were seeing the past several weeks.  Stocks began with a little gain but lost it through the day as crude oil continued to decline, down $2.00.  China remains the concern for global equity markets and commodity prices. Treasuries and MBSs weaker in price today but off their morning lows. The 10yr note is still having a struggle - breaking away from 2.20% as it is at 2.16%.

After a quiet year end, since last Monday markets have been in turmoil as China’s economic outlook is seen as economically weaker than what the Chinese government has said.  The selling in equities now is not the great sell-off we expect later this year. This is just a warm up event, later this year after another run up in equities the stock market is set for a major decline, as this one is a minor drop.

Reading the various economist that I do today, it is scary.  Some are saying that the market will hit 10K again before the end of the year.  The road lower will take many by shock and awe when it begins. James Dale Davidson the famed economist who correctly predicted the collapse of 1999 and 2007, now warns, “There are three key economic indicators screaming SELL. They don’t imply that a 50% collapse is looming – it’s already at our doorstep.”  The Fed clueless or scared to death, or naïve - this year is not going to be good. Global recession is almost a certainty this year. There will be a major move into US treasuries that will take the 10yr note yield to under 1.50% later this year.  If this happens, we might be looking at more refinances again.

This is not the beginning though - still have to weaken the bulls and Fed officials that seem to miss every boat leaving the shore going back to 2006. Presently I expect some consolidation and improvement in equities and the rate markets in narrow ranges. The 10yr now under 2.20% but remains in the orbit unable yet to break away.  Because of technical factors, I have been floating for a few days unless you are close to closing on your transaction in the next few weeks. Equity markets drive the rate markets, the bullish bias has not been damaged enough yet. Look for a rebound for a few days. One Wall Street economist out there today saying that China is old news and a worn out reason to sell that is the kind of thoughts circulating.  Reality has not sunk in yet. Here come the Q4 earnings reports, they will not meet Q3 and forward guidance will be soft.

Tomorrow JOLTS job openings is all there is. Treasury will auction $24B of 3yr notes. 

In summary, Bonds tread water, ending slightly lower today.  Despite the losses, the rates were basically the same as on Friday. I am not sold on a looming rally just yet, and as long as we are near the low end of short term ranges, I would be locking on these dips if you are close to closing.  For now, I am locking within 15 days of closing, and discussing options for borrowers further out, balancing risk/reward.