Mortgage Rates Following 10yr Yield - Going Up

After thirteen sessions trading between 1.74% and 1.80% the 10yr this morning has breached the range and is currently at 1.85% after hitting 1.87% earlier.  MBSs have come back from a negative 45BPS and is trading at a negative 33BPS at 10:30AM. 

The UK GDP better than markets thought, as their GDP grew and beat estimates by a large margin both by quarter and year over year. Most analysts and economists have been down on the UK since the Brits voted to leave the EU last June. Britain has yet to begin formal discussions in the divorce from its biggest trading partner, meanwhile, with Prime Minister Theresa May saying the government will start the process by the end of March 2017.

Our two data points with Weekly Jobless Claims and September Durable Goods came in close to expectations and had no effect on this morning’s pricing.

However, September NAR pending home sales (contracts signed but not yet closed), came in better than expected and pushed MBS prices down a few more ticks on the initial reaction.

This afternoon Treasury will sell $28B of 7yr notes; the technical brake in the treasury market likely to test the demand.

Q3 GDP tomorrow, expected +2.5% from 1.4% in Q2. Later today the Atlanta Fed GDPNow will be updated; we will have it this afternoon. Next Wednesday the FOMC policy statement. Everything presently stacking up against the rate markets with markets expecting the Fed will increase the FF rate at the Dec meeting. Yesterday Mario Draghi, ECB president began shaking heads in the global rate markets when he commented that "we would certainly prefer not to have to keep interest rates at such low levels for an excessively long time, since the unwelcome side-effects may accumulate over time." Draghi admitting the QEs are not doing what the ECB thought they would and it is a similar situation in Japan where negative rates and has have failed to rally consumer spending and economic growth. Today the better UK Q3 GDP added more pressure.

Not news here that the technical models have been bearish since early October, although most of that time there was no significant change - until today. I have constantly warned about increasing mortgage rates. Now, technically, the next target for the 10yr note is 1.90% unless it reverses hard tomorrow. When a market trades for weeks in a narrow range the take away is that bulls and bears were balanced - once a market breaks it usually forces those on the wrong side to capitulate quickly.