Mortgage Rates Barely Budged Today

Mortgage rates barely budged today, but did manage to gain a little bit of ground to set the table for even lower rates – even though we did not see that much today.  Janet Yellen stepped up and admitted now that the balance of risks to the economy have shifted for the worse.  As I have noted numerous times recently the Fed and its 100s of economists have underestimated the negative global growth and the effects on the US economy.  In her testimony today at the House Financial Services Committee she acknowledged the potential problems that may impact the US. She remained upbeat on job growth and valiantly tried to paint the picture in a positive light….for the medium term (whatever that actually means in the Fed dictionary). She used the same word to frame inflation, although acquiesced that inflation may take longer to see her goal of 2.0%. The risks to the Fed’s outlook now may delay anymore rate increases, but the markets have already been aware of that.

Nothing in her testimony or the Q&A surprised me expect the Fed is frozen - the Fed is at a loss about what to do. I doubt the Fed or any other central bank has a workable blueprint to turn the ship around. Unfortunately the best central banks can do is cheer lead and keep an upbeat outlook, no matter how difficult that is becoming this year. As Rick Santelli commented (my favorite Italian commentator on Squawk Box – CNBC) - the Fed does not even have a plan B.  Overall the US financial markets took the testimony in stride.

The new 10yr note auction went quite well this afternoon after a poor 3yr yesterday. Tomorrow Treasury will auction a new 30yr bond selling $15B. Weekly jobless claims expected down, and as long as they stay between 265K and 285K, the report is not as important to traders as it has been over the last few years. This morning crude oil inventories were expected to be up 4 mil barrels, as reported inventory levels dropped .754 mil barrels; bullish for prices. Crude however is lower today, but off the low prices earlier. The 10yr closed at 1.67% as Yellen’s testimony continues to support lower rates as the economic outlook according now to Yellen is uncertain. Her comments today coming very close to admission the US is weakening as global economies worsen.

In summary, bonds and equities both rallied mildly today, after Yellen testified to Congress. The long term trend to lower rates is intact, the question is when it pauses. I was tempted to lock some later in the afternoon, but held out as floating remains a valid option for those with time, and risk tolerance on their side.