Mortgage Rates Moved Lower Today

Mortgage rates moved lower today, regaining a good amount of the ground lost over the past few days.  Interest rate markets started strong this morning and continued to hold morning gains through the day.  Japan sold a 30yr bond today that met with very strong demand and new all-time low yields.  China’s exports plunged setting off some profit-taking but volume was thin. This afternoon Treasury sold $24B of 3yr notes that did not go well.  The soft auction today likely due to the coming ECB meeting on Thursday. ECB meets Thursday with anticipation Mario Draghi will offer up more stimulus. ECB reserve rates now negative and may become more negative to push banks into more lending.

Three weeks of higher US equity prices and higher interest rates came to a quick halt today, lots of ink talking about safe haven moves to treasuries and gold but gold was flat. Crude oil declined on concerns supplies will be up tomorrow when crude oil inventory levels are reported. China’s economy on the weak exports today looks softer than yesterday and Japan’s economic outlook worsening. No one should take anything of consequence from today’s rally in MBSs or treasuries. Volume is thin, ECB on Thursday and the FOMC meeting next week presently halting equity market surges. Markets are not confident about anything these days so it does not take much to develop big swings. Those bullish outlooks or bearish outlooks are about as solid as butter in the sun.

Nothing tomorrow but January wholesale inventories are expected downward. Inventories have influence n GDP, lower inventories a drag on GDP. Treasury will auction $20B of 10yr notes re-opening the 10yr issued last month. Crude oil inventories also out tomorrow.

Risk is back on. Today could be a one-off session. Crude increased and global data weaker, the short-covering in US stock markets is over now. Thursday the ECB, if there is any waffling by Draghi look for interest rates to decline and stocks regain selling momentum. At best, and I have to look real hard now, as the technical work is neutral, although tilting to slightly negative. Interest rates have to hold here, if yields move any higher the damage to the near technical outlook will become more negative. Whether interest rates a little higher is debatable presently but even if rates edge higher from here the very long technical work will remain constructive. I still have not relinquished the longer term bullish outlook for interest rates.

In summary, bonds had a nice day today thanks to continued global growth fears. Even though we have seen some gains in our pricing, with the recent weakness, most will agree to hold ground before we get all the gains. So I like what I stated today, cautiously float at this time.