Mortgage Rates Hit Another Low

What a day as we saw mortgage rates hit another low today before a rebound upward towards the end of the day.  Just before the close, the DJIA was down over 400 points and the 10yr note yield was a t 1.60% along with MBS prices +32 bps.  Then an OPEC member was reported by the WSJ saying OPEC may be ready to cut production. A UAE minister said OPEC ready to cut output. Prior to that crude was at 13 year lows at $26.50. Within 15 minutes of the report the DJIA jumped 200 point and the other key indexes shed those heavy losses. Not sure whether that is significant but the markets' reaction is strong evidence stocks are very oversold and the bond market, as we noted this morning is equally overbought.

Janet Yellen finished her talks at the Senate Banking Committee today. Yesterday she acquiesced that the US economic outlook was weakening, although she kept her optimistic outlook as best she could. There were questions yesterday at the House about the Fed possibly going to negative rates, there was a question whether it was legal for the Fed to do so. Today more questions about negative interest rates and Yellen said the central bank could turn to negative interest rates in an economic downturn despite legal and other uncertainties. Japan, ECB, other EU countries already gone to negative rates while the Fed increased rates last December. 

Investor panic increasing but not yet full-blown. US financials over-extended now and overdue for rebounds - when that happens though it won’t change the outlook for lower rates and lower stock indexes; here and globally. The faint spell of fear is growing stronger.

Yesterday Treasury sold 10yr notes that met with very strong demand today $15B of new 30yr bonds did not go as well. Not too concerned, it’s the 10yr term that has global interest. Tomorrow markets finally get key data points with January retail sales, export and import prices, and the U. of Michigan midmonth consumer sentiment index.

In summary, with the recent gains we have enjoyed, I think it would be wise to look to lock some of these gains as again we might see a little tick upward.   All these gains could be wiped out very quickly.  Even though I favor locking today, I am optimistic that this rally can continue but we might see a little pull back going into the 3 day weekend.