Mortgage Rates Trending Higher This Morning

Mortgage rates are trending higher this morning.  Last week we saw the market hit high gear with extreme volatility and it has not yet stopped with what the market is currently doing this morning.  The stock market is still climbing at 11:00AM and the 10yr Treasury is now at 2.21%, which is down from the open this morning, but still 40BPS higher than last Monday.  MBS are down another 57BPS.

Today I am anticipating the same of what we have seen since Wednesday morning – mortgage rates are increasing.  Per the current thoughts from economists, the economy could increase to 2.2% growth in 2017 and 2.3% growth in 2018, up from 1.6% this year. Inflation 2.2% in 2017 and 2.4% in 2018. Also since the election a sea change among investors and economists about Trump - he sounded subdued in his acceptance speech, his meeting with Pres. Obama also calm. I am surprised how the view of Trump has changed so quickly and dramatically. Has he changed his strategy, away from the blunt sometimes shocking comments during the campaign? Markets presently believe he has - an outstanding shift from last Monday.

MBA Chief Economist Michael Fratantoni said in an interview last Wednesday, "Big picture, it was definitely easier to discern what potential Hillary Clinton policies would be,"…. "Given the nature of the [Donald Trump campaign's] proposals, they've been very high level at this point. It's difficult to gauge what the specific impact will be, but certainly we'll learn a lot more about that in the coming weeks."

The Trump Correction. We are just at the beginning of the "Great Unwinding" in the bond market. Last week saw a pronounced sell off in bonds as bond traders see a higher potential for economic growth under Trump. As his policies are firmed up and as he adds staff in key areas, the bond market will continue to react and to sell off helping to increase mortgage rates.

This week we have a glut of Fed speak this week with the focus on Thursday's testimony by Janet Yellen. While the MBS market has sold off - I still do not believe that there will be a December rate hike.  However, any "hawkish" commentary could pressure MBS and even cause some traders to add a higher probability of rate hikes in early 2017.

There is no economic data today, but on Tuesday we get the most important report of the week - Retail Sales. PPI and CPI will also get a lot of attention but really, these reports will have much less of an impact as they historically have had as traders are focusing on the prospects of high growth in 2017 and not so much about where we were a month or two ago. These reports will not have an impact on mortgage rates but we always pay close attention to the state of our housing market which has been very strong as of late. This week we get Home Builders Sentiment, Housing Starts, Building Permits and Mortgage Applications.

Mortgage rates will continue to be very volatile this week while the mortgage rate market continues to digest what a Trump administration will look like.