Mortgage Rates Higher Ahead of FOMC Minutes

Mortgage rates moved higher today as investors sold assets ahead of tomorrow's Fed Minutes.  This was most evident towards the end of the afternoon as we saw the lower Treasury notes (2yr) rise faster than the movement we have seen on the 10yr.  Today’s increases were so minor, that I tend to worry when this all could be a delayed reaction to what might be happening tomorrow?

Asset prices move lower when sellers outweigh buyers, and when the price of bonds moves lower, rates rise.  This was most evident in the shorter-term bonds that react more to the Fed Funds rate.  In other words, 2yr Treasury yields rose more than 10yr Treasury yields or mortgage rates.  Right now, bonds markets are suggesting rates should have moved higher today.  As such, we begin tomorrow at a disadvantage because rates likely will be higher even if bond markets do not change overnight.

Housing starts and permits in April better than forecasts; April industrial production and factory use also better than what had been expected. The stock market got tagged today. Yesterday the NY Empire State manufacturing index was much weaker than expected and the NHAB index slightly less than expected. The stock market rallied.

A pattern may be developing - when is good news bad news? When the economic data is better than expected? It is not like the old days. The yield curve is flattening, short rates increasing while at the long end of the curve rates have been stable. Market still overall do not expect the Fed to increase rates in June, but it is peculiar that strong data points are bothering the equity markets. A flattening curve is something to pay attention to now with the Fed in play. No surprise that markets have lost faith in the credibility of the Fed - too many comments that do not match Fed actions and too many wide disagreements within the Fed. The stock market is spinning faster than Carrie Fisher’s head in the Exorcist.

Tomorrow afternoon the Fed will releases the minutes from the April FOMC meeting, and before that the weekly MBA mortgage applications early in the morning. Noting else on the schedule.

In summary, tomorrow could be volatile with the release of the FOMC minutes from last meeting.  Our benchmark 10yr note has been holding between 1.76 and 1.70 for the last couple weeks.   We are currently toward the upper end of that range which brings up the saying float the highs, lock the lows.  If you are happy with your rate quote, I hope you have locked in already.  I do not see a huge rally breaking the 1.70 floor inside the next couple weeks, so there is not much to be gained but you do have quite a bit to lose.