Mortgage Rates Hit Lowest Levels in 12 Months

Mortgage rates dropped significantly today hitting their lowest levels in 12 months.  These rates are being dragged along by treasuries as the weakness in equity markets worldwide is finally unable to be ignored. Valuations measured against the true state of the US and global economies were exceptionally high as I noted a few times in December. Since the beginning of the year the 10yr note yield has dropped almost a half percent to 1.75%, along with MBSs.  Market optimists are still unwilling to define the equity market as a bear market.  If this is not it, it will be soon.  The global growth weakening, central banks about out of bullets regardless of what Mario Draghi contends, the Fed confused as the bank has been for the last 18 months. Investors clobbering financial and banks stocks, manufacturing stocks definitely in a bear market, those high flying dot.com stocks being beaten badly.

Investors increasingly moving out of risky assets, but not yet the stampede I expect later this year. Meanwhile consumer confidence and sentiment continues to hold well giving optimists a thread to hold onto. Consumers generally are not invested in stocks but as the headlines continue and job losses increase consumers will take serious notice. Last Friday December consumer credit was expected to have increased - and it did.  Good news, or bad? The good would imply consumers feeling better about using credit now versus the last two years. The possible bad news; consumers are increasing the use of credit because fixed expenses may be increasing, requiring the use of borrowing.

There were no economic releases today, and there will not be any of significance until Friday. Tomorrow Treasury auction $24B of 3yr notes - the demand will have our attention, especially indirect bidders as money is inflowing to the US. Also tomorrow December wholesale inventories, which will have an impact on GDP - lower inventories a drag, higher inventories supportive to GDP.

The selling today that pushed interest rates down is not likely to continue tomorrow.  But this is not over as it is just in the beginning stages –and the moves lower are going to be volatile. With Janet Yellen scheduled to begin her two day congressional testimony on Wednesday, I do not believe equity markets will continue as they did today. The 10yr yield has become a little pricy presently, although I think the 10yr yield will eventually drop to 1.50% and mortgage rates for 30yr mortgages will drop another .25%.

In summary, rates continue to move lower.   If you have been floating, you should be seeing a lower interest rate.  At this point, if you lock, you walk away a winner, and there is never anything wrong with that.  If you can tolerate the risk, I think I would continue to float and see if this rally can extend even further.  The trend is our friend right now.