Mortgage Rates Bounced Higher Today

Mortgage rates bounced higher this afternoon, bringing them back in line with the ceiling that we have been hitting more times in the last few weeks than we have had in the past two months.  Two events today sent the bond and mortgage markets back to their technical support points. The ECB did not move rates lower and Draghi commented that he was satisfied with the current results of the recent QEs and negative rates. The second was a huge decline in crude oil inventories this morning.

So far it is just one month so there is no reason to panic but another soft series of monthly data points may rock the equity markets. In the meantime, the Fed is on a short leash, if the economy is seen as slowing the Fed will not be able to move so like at least three previous times over the last two years when the Fed wanted to move it was stymied with momentary slow data. The Fed did move last December and said at the time it would move four times this year. The markets tossed that in the trash and so did the Fed very quickly. Presently the Fed is trapped - if it does not move now we expect economic slowing to increase and likely will handcuff the Fed well into next year.  

Nothing today was earthshattering; simply trading the range. For over two months’ traders have lavished nice profits trading it. Buy at 1.50% sell at 1.60%.  We will see tomorrow and the next few days whether the range will hold once more. Mortgage originators must be careful forming and acting on any concrete view now. Market rallied early this week on weakness in the ISM indexes, today back to about where MBSs closed last Friday.

There are no data tomorrow and nothing next Monday. Movement in the bond and mortgage markets will depend on global news, the movement of the dollar and there are some Fed officials speaking Monday. As you can expect the technical models are still neutral but will change quickly when the tight ranges are broken. In the meantime, only traders have a chance to benefit. LOs and most mortgage companies should stay flat.

In summary, yesterday may have fooled us, or perhaps today is the bluff, but at the end we are still within the recent range.  Locking loans with a closing of inside of 15 days is my current recommendation, with a very small tolerance for floating loans between 3-6 weeks of a closing.  If the range breaks, rates will pop, not worth the risk.