Mortgage Rates Continue to Improve

Mortgage rates improved again today, bringing them back in line with the lowest levels of the month.  The 10yr is at the low range of the 1.50% to 1.60%. Will the 10yr break below 1.50%? MBS prices improved throughout the day.

The 10yr auction according to Rick Santelli at CNBC was weak as he graded it a “C”, but the foreign demand we gave it an “A”. Tomorrow $15B of a new 30yr bond will be auctioned, likely the demand will also be strong from foreign investors. Also tomorrow weekly claims, not much of a market factor the last two months. July export and import prices also will be reporting in the morning.

The stock indexes have been weak this week with not much improvement after it had a big move last Friday on the July employment - but no follow-through so far this week. Today the indexes closed lower but not anything significant.

What to do? Before this week, there was good reason to worry that rates might be breaking higher out of narrow range stretching back to late June.  But in just a few days, we are already close to the lower side of that range.  At the very least, I can say we have seen a solid bounce off the proverbial ceiling.  At this point, we are closer to hoping for a break through the proverbial floor.

In summary, Bonds continue to add to their recent gains following today’s solid 10yr treasury auction.   We have one more auction tomorrow, then new supply is done for a couple weeks.  It is pretty common for bonds to continue to improve once all supply has been absorbed by the markets.  So, I would recommend to continue to proceed with caution if you are not closing in the next 15 days.