Mortgage Rates Basically Unchanged

Mortgage rates basically were unchanged today, even though some of the indicators showed positive signs for improvements next week. Financial markets closed early for Memorial Day weekend, and will be fully closed on Monday.  Sum this bond and mortgage markets as stuck in very narrow ranges, investors and traders do not want much to do with either buying or selling ahead of the FOMC meeting and prior to that next week’s employment data (next Friday).

Over the last two weeks Fed officials were overall talking a rate increase, just as they have been doing all year. Some doves grew into hawks, hawks were taking center stage, finally markets were preparing for the Fed to make the move. Like Evil Knievel walking back and forth for hours hyping up his jump and building tension, measuring the wind and temperatures - and at times calling the feat off. Then this afternoon Janet Yellen in her remarks at Harvard University went somewhat dovish falling back to her mantra of being data dependent - nothing unusual but poured some water on the fire.

Next week is likely to be more volatile than this week. Very key data that by the end of the week may cement the timing of a rate increase, and it is coming, ether June or July, July if the Fed frets the British vote that occurs on June 23rd after the June meeting. As each data point is reported volatility in bonds and stocks should be expected - a lot different than this week’s snoozer.

Start putting more emphasis on the dollar next week. With the Fed’s rate increase on the radar, once currency markets actually sniff an increase the dollar will gain against all other main currencies and will be a one support for US bonds as foreign investors rush to dollars - as we saw that this week with the strong demand for Treasury auctions. The dollar increasing will be a drag on exports and US manufacturing.  Focusing more directly on the dollar, another way to read the bond markets. I do not want to over-emphasize it but always searching relationships and a stronger dollar may not drive rates lower but will temper to some degree selling of treasuries as a rate increase comes more into focus.

In summary, technical levels have been the most relevant indicator for my lock vs. float decisions and recommendations to my clients.  The 10yr Treasury has been in a confined range, with limited volatility above and below certain key levels.  With the ongoing headlines of a Fed rate hike, bullish moves in the stock market, and a lack of willingness for yields to move lower, it makes a strong case to lock for many.  I think trading between 1.84-1.87 is a safe zone, and would only recommend locking if yields presented a threat of breaking out above, or a benefit of trading below.  There has been plenty of data to push rates in either direction, but it appears the big money traders are waiting for something much more definitive.  In the interim, always be ready to pull the trigger.  Have a safe Memorial Day weekend.