Mortgage Rates Hold Steady

Mortgage rates held steady today, even though there were some uneasy times seen today between traders. Yesterday Janet Yellen’s comments basically stated that she is not too interested in increasing the FF rate as soon as what markets were being pushed to believe by the regional Fed presidents hawkish speeches the previous week. MBS prices ran up 55 bps points, the 10yr note, after testing its technical resistance at 1.85% for over a week, broke below it to close at 1.81%. Today most of those improvements held well. The only data today was the ADP private jobs report, came in very close to expectations.  The key that I stated in my morning report was the 10yr note, and the yield did hold below 1.85%.

Now that markets do not fear an immediate rate hike that had grown with each Fed officials’ remarks, the next hurdle in the queue is Friday’s employment data. The markets have their expectations, and very few are thinking too much about it except that the most important focus of traders is the average hourly earnings.  The other key to look at is the labor participation rate, which is the measure of those actually working compared to those that could be working.

Treasury completed this week’ borrowing with $28B of 7yr notes this afternoon. Recent auctions over the last month have been rather tepid in demand, this week’s 2yr and 5yr auctions were lacking strong demand. After Yellen’s speech yesterday today’s auction was strong in demand. The better results added a level of support for the treasury market this afternoon.

Tomorrow is weekly jobless claims expected unchanged from last week, and the March Chicago purchasing manager index.  Not much particularly a day before employment on Friday.

I decided to cautiously float today after the strong improvements yesterday.  I will continue to float but would not be surprised if prices decline a little tomorrow, employment data usually keeps markets in check, especially for price gains. I still anticipate interest rates are going to decline over the next month or longer. The stock market is weakening daily now on internals, one reason to expect rates to decline and I doubt the Fed will increase rates this year. Global economic outlook is negative with more slowing ahead. The longer term outlook this year is that the 10yr note yield will drop to 1.45% and mortgage rates for 30yr mortgages down to some lows that we have not seen in years – and I anticipate another refinance boom coming later this year.

In summary, bonds gave back some of the gains they enjoyed yesterday.  The 10yr treasury bounced off a nice level of support.  With that support level holding and with bonds back to unchanged on the day, I think it would be worthwhile to float.  However, I will point that if you are happy with the current quote, nothing wrong with locking.