Mortgage Rates Find Footing

Mortgage rates found their footing today, as this has been a week that has been difficult to handicap, not unlike the week before.  This morning April retail sales were better than forecasts as the increase was the most since March last year.  The U. of Michigan mid-month sentiment index jumped to its best level since last June - if the index holds when the final May index is released later this month. March business inventories adds a little support to Q1 GDP revisions when the preliminary Q1 GDP is reported on May 27^th.

The data was stronger but stocks dropped and the bond and MBS markets improved.  If there is anything normal these days the data today should have supported stocks and pressured interest rate markets. It has been that way most of the past two weeks. Stock investors are want to buy on any good economic news, following the dollar and crude oil prices instead. This week when the stock indexes rallied there was only very minor pressure on rate markets, and on declines no significant movement in the bond market. The 10yr note yield did decline this week and until MBS prices for the week were up.  What was strange was that after I submitted my morning report with hesitation, everything got better!

The dollar found a bottom this week but has not yet turned the trend around. Crude oil increased this week however oil professionals are stating that production is likely to increase once more, probably more than the increased demand in the summer months.

I expect next week to see the 10yr note break below 1.70% and send rates lower, OR another failure at 1.70% will drive rates a little higher and completely flip the minor bullish technicals. The Fed remains in play in terms of a June increase, traders say no way based on the trade in the FF futures markets but recent comments from regional Fed officials, if you listen (read) carefully are sounding more jointed to a June move. It depends on the coming data prior to the meeting but further better April data news could easily swing more toward an increase. Data dependent as Yellen continues to espouse. The decline in equity indexes today on better than expected data and this week is something to consider.

I have floated all week with not much to show for it. The action today was nice to see but still technicals have not broken out.  The 10yr is testing 1.70% the major resistance and not able to break it. MBS prices improved quite a bit from my morning report and for the week.  Next week a mix bag of data and Fedspeak.

In summary, the benchmark 10yr note has broken a key floor of resistance as it sits at 1.70%.   I was hopeful of a rally after the final auction on Thursday, looks like we got it today rather than late yesterday.  I continue to favor floating and let us see if this rally can continue.