Mortgage Rates Bounce Back

Just a day after bouncing firmly higher from the lowest levels in a month, mortgage rates are right back down to the bottom of the recent range.  There were nice price gains this morning on another Friday surprise. The 10yr dropped to 1.49% at its resistance but this afternoon did not hold and that one-month range continued to hold.

This was the third Friday in succession that has roiled rate markets. Three weeks ago the Q2 GDP advance report; two weeks ago the July employment report was much better than forecasts pressuring rates higher and prices lower; today July retail sales were much weaker than thought. All three of those Friday misses though did not change the general level of interest rates - the swing in a narrow 10BPS yield on the 10yr Treasury Bond.

This week an increase in volatility in a very narrow range but rates and prices are ending better than last week. With rate markets in these narrow flat ranges markets and pundits like us have been making mountains from ant hills. Nothing has changed for a month - data comes and goes. Good economic data countered with weaker reports keeping rates unchanged unless you are a day trader and our readers are generally not. Equity markets continue to improve not concerned with less than expected economic reports - all about going where the opportunity for the best returns can be found. New all-time highs yesterday in the three key market indexes.

There is no correlation now between stocks and bonds as is generally the case. The bond market supported by negative rates over the world, the stock market very over-valued continues to gain as investors and advisers ignore the underlying reality. How long those issues will hold is not easy to guess - as long as those markets are doing their thing nothing else to do but ride the waves. We continue to believe US rates will eventually decline from these levels.  It could also increase a little before the coming declines, go with how markets are trading ignore those bullish stock market thoughts and comments.

In summary, Bonds rallied today, as inflation data indicated US prices for consumers and producers both failed to meet expectations.  While our gains are welcome, we still remain within the same tight rate range as the past month.  Conventional wisdom is that long lived, tight ranges lead to big moves when (not if) the range breaks, but I am not sure I agree now, given tepid global economic data.  Might be a good time to float, just do not expect rates to drop .25% overnight!