Mortgage Rates Show Nothing

Mortgage rates showed nothing but that was to be expected. The bond and mortgage markets are holding well in the face of the two central banks - the BofJ and the FOMC meetings coming up. The markets are not looking for the FOMC to move rates higher, at least most of them. Barclays and BNP Paribas, both primary dealers to Treasury, still believe a rate hike will occur tomorrow. If that were to happen the stock market will drop like the proverbial stone and interest rates will shoot higher rapidly. With the overwhelming consensus that the Fed will hold still tomorrow any rate increase will shock investors-  the Fed will not shock markets like that. It is not the Fed we are thinking about, it is the BofJ. The BofJ has sent some spitballs recently that it may increase the negative interest rates and add more bond buying. If that occurs, it will support bonds and equity markets. The answer will come about mid-night eastern daylight time tonight. The pen in the morning could be volatile but we will still have the FMC tomorrow afternoon at 1:00 and then Yellen’s press conference at 1:30.

In summary, the Fed meets tomorrow and we await their decision on rate policy.  The chances of a rate hike tomorrow are slim, however, the odds are not zero and a since a hike tomorrow would likely throw the markets into a little bit of a frenzy locking up your rate today seems very prudent.  High risk floaters may be rewarded but you better make sure your risk tolerance allows for the unexpected disappointment that could follow.  Better safe than sorry I think.