Mortgage Rates in Limbo

Mortgage rates are in a state of limbo with yet another day with not much change in the bond markets.  The bellwether 10yr has stayed in a tight 3BPS range for several days and closed at 1.59%.  It is holding its support but looks vulnerable to more selling. MBS prices lower today after some improvement yesterday but also in a narrow range.

This week has been quiet as we expected. Tomorrow the ECB meeting that is not expected to announce any new stimulus but like next week’s FOMC meeting it is about the statement and Mario Draghi’s press conference. The FOMC meeting next week is gaining some thoughts that the Fed may make it more direct that another rate increase will occur. According to Fed fund futures, the FOMC is virtually guaranteed to hold rates steady when it meets next Tuesday and Wednesday, but the probability of a September hike is up to 25%.  Markets have gagged down the Fed comments and multitudes of Fed officials’’ speeches since last December with no action, just threats of higher rates “maybe”.

There are data points tomorrow starting with weekly claims, July Philadelphia Fed business index, June existing home sales, and June leading economic indicators.

Money is coming out of safe bonds and into the equity markets. The UK exit decision has been totally discounted as nothing to be concerned about now, as time goes by though it will have more impact. Two weeks ago the consensus was that Q2 bank earnings and profits would be soft - bank stocks were driven to the ground. Since then as banks have reported the picture is much better. It was thought that banks with these low rates could not improve but most have surprised to the upside. The better earnings in the bank sector are pushing indexes higher and new highs recently.

In a week like this there are many stories, most just filling up space and time. People like myself are supposed to have some wisdom but we really rely on the expertise on the smart economists that we follow – but, as I have learned, no one else has the foggiest idea on what I report to my followers.

Media focused on the Republican Convention. Today musings about fiscal stimulus in 2017 regardless of who the president may be. Debate between what Trump would do versus what Clinton would do. Tomorrow its over - in two weeks the Democrats will have their week.

In summary, I do not see much benefit in floating right now.  Each time bonds try to rally, it is met with quick selling.  If you are closing within the next couple weeks, I think locking today would be the wise decision.  Longer term closings could consider floating but keep in mind that rates might edge higher before they head back down so only float if you can tolerate the risk.