Mortgage Rates Unchanged Despite Rally of Mortgage Bonds

Mortgage rates are unchanged this morning, which was surprising to see that there was not much follow-through from yesterday’s strong rally.  So far today at 11:00AM, we are again on the positive side with MBSs, with the 10yr trading in its tight range of 3BPS, but unchanged from the open at 1.51%

Weekly jobless claims this morning were in line as the expected increase was just a tad more, but not much as the four-week average is now what most people look to read.  The June trade deficit was a little more than anticipated as well, but both reports are not major movers. This afternoon at Noon, Treasury will auction $28B of 7yr notes, as the 2yr and 5yr auctions earlier this week were tepid at best.

The FOMC statement yesterday broke the tight trading range that had captured the 10yr and MBS market for two weeks on initial reaction that the Fed will continue to hold off a rate increase but the tone of the statement is being seen as a red flag that the Fed will move again this year. Markets however still questioning whether the Fed will have the latitude to do so this year. The Fed’s track record being brought into question based on past false outlooks. Traders appear to have over-reacted yesterday but there were stops in place just below 1.56% on the 10yr that triggered buying to cover some of the short positions that had been set going into the FOMC. This morning some pullback ahead of this afternoon’s auction and the news that will come tomorrow.

Tomorrow the advance Q2 GDP, Q2 employment cost index, July Chicago purchasing mgrs. index, the final read on consumer sentiment and the BofJ meeting. Each July Commerce release revisions of growth that go back two years, the revisions may play a big part in the release tomorrow.

I have mentioned several times at the beginning of the year, and especially when the reality was hitting hard in the first two months of the year, that the stock market may be in trouble.  This morning in the WSJ, there was an article this morning on the possibility of the stock market being over-valued based on the percentage of net wealth of stocks compared to the national income.  US stock markets, after running to new all-time highs are looking heavy from a technical perspective - no major selling but buying has slowed even with somewhat better earnings.

Again, I am still stating my stance that one could cautiously float if they take in account their risk tolerance, but the best bet is to still lock if you are closing in the next 15 days.  This market is funny, and it could turn very quickly.