Mortgage Rates Hold Their Ground

Mortgage rates generally held their ground today.  It was a volatile session. This morning the bond and mortgage markets were rallying nicely on comments from the Saudi oil minister that the Saudis would not reduce production of oil. His comment was that as crude remains low the higher cost producers would eventually have to stop pumping.  The minister said he did not like pumping oil at $20.00 a barrel but he would do it until high cost producers were forced out of the market as costs of production exceed the cost of output.  The immediate reaction sent the 10yr note rate down to 1.66%, crude prices down $1.00, stock indexes dropped, MBS prices rallied and were +41BPS at one point today.

Crude is the driver now as there are numerous factors but crude recently moves all markets. As crude increased the weak stock market began to turn around also. And when equity prices improve the bond market declines in price. You can read volumes about the details of what is driving markets currently but in simple direct terms, it is all crude oil. If you read my morning report, you know what I said and continue to say - uncertainty is the only thing these days that is certain. Investors do not know, pundits change views as quickly as underwear, media wonks can hype anything, that is their job.

This afternoon the 5yr notes that were auctioned off met with good demand. Tomorrow weekly claims and January durable goods orders. Durables are a critical data point. Treasury will completer this week’s borrowing tomorrow with $28B of 7yr notes, and it is expected to be another strong auction.

Poor economic data, the Fed not sure what time of day it is, growth based on actual data overall is not looking as promising as equity markets believe or the Fed thinks. Nevertheless, stocks today did a major turn, from -250 at one point for the DJIA. Take a moment to read above. If you want logic and realism watching the stock market is not the best thing. I continue to believe the stock market is in for a much bigger selling binge than what we saw in January. One thing I do know - I have never been capable of forecasting stock market movements in terms of timing. The equity market is full of wishful thinking and it takes a lot to shake out optimism that is continually fed by stock brokers and Wall Street firms - by the time reality has sunk in the damage is already underway.

In summary, bond markets opened strongly today, improving rates, but the rally faded around 1PM.  The IMF released some dovish (bond friendly) statements this afternoon.  If economic conditions continue to wane, rates will improve, over time.  For now, I am still locking most clients within 15 days of close, floating those who understand mortgage (just like gasoline) prices can go up or down!