Mortgage Rates Continues to Show Little Movement

Yesterday’s and last week’s ISM indexes (manufacturing and services) were much weaker than markets were expecting. The Service sector index yesterday declined to its lowest level since Feb 2010, the manufacturing index last week went into contraction. The two key data points removed any concern the Fed would increase rates at its meeting later this month. Prior to the service sector ISM yesterday there was an increasing belief around markets the Fed was prepared to move but as Janet Yellen continually points, she is data dependent. A December hike is still in play at the moment.

The reaction to the weak services sector index is taking the bellwether 10yr note yield from 1.60% back to its resistance at 1.50%. Since July 12th the 10yr has flat-lined between 1.60% and 1.50% - one of the tightest trading ranges in years. MBSs are also in a tight knot. The narrow ranges clearly show investors and traders are satisfied with the level of interest rates and ignore all of the chatter about inflation increasing and comments that the bond market is destined to move higher in yield. That eventually may be the case but in the immediate world there is no evidence that investors or traders are making any serious bets. Not only the bond market wrapped in a tight range, the stock indexes also flat-lining since the alter part of July.

Early this morning the weekly MBA mortgage applications still showed increases, even with the speculation of the Jobs Report and the small increases in fees last week.  This afternoon the Fed Beige Book will be released; the Fed staff’s data and reports from the 12 Fed districts. More detail per region but usually the Book has no real surprises.

Focusing on the dollar these days is another key indicator of what markets think.  Last week the dollar gained against most all currencies on the belief the Fed would move later this month. After the ISM reports the dollar is weakening as the idea has deteriorated.

Currently at 10:00AM, the 10yr is at 1.54% and MBS are showing very little movement.  If you have the stomach for it, continue to float unless you are closing in the next 15 days.  Unless someone sneezes in Washington today, I do not anticipate much movement in the mortgage bonds.