Mortgage Rates Moved Moderately Lower

Mortgage rates moved moderately lower today, as we saw a huge rally today in the stock market, and the bond market also improved.  It seemed as financial markets positioned themselves for an important announcement from the European Central Bank (ECB) tomorrow regarding the possibility of tapering its asset purchases.  Much like the market movement seen in late 2013 following the Fed's "tapering" message, stocks and bonds (yields) moved in opposite directions (i.e. stock prices higher and bond yields/rates lower).  This occurs because central bank purchases are like a rising tide that lifts all ships.  The more a major central bank is spending, the better things generally are for both stocks and bonds.  This runs counter to the typical intraday stock/bond relationship where yields/rates tend to move in the same direction as stock prices.  With this improvement, and if the ECB does make the change - euro-zone rates will continue to improve as they did today.

The 10yr dropped today to 2.34% while we saw the MBSs have a positive 27BPS move.  There were no significant data points today that triggered the movements in stocks or bonds. Trump, hated by 80% of the business community prior to the election is now almost 100% backing his presidency. A psychologist would be able to write a paper on the change in sentiment. Time Magazine named Trump “Man of the Year” today.

Technically, there is resistance on the 10yr at 2.30%. Since 11/18 the 10yr has traded between 2.45% (three times it held) and 2.30% (three times it held). Next week the FOMC meeting on Wednesday - a rate increase is assured.  Traders waiting for the statement and what it may imply for additional increases in the FF rate in 2017.

In summary, bonds posted solid gains today ahead of tomorrow's ECB policy statement and Draghi' press conference.  His rhetoric on EU economic conditions and future ECB economic stimulus will play a large part in where rates go from here.  I like the trend this week, still not convinced rates have stopped their upward trend, but we are getting closer to confirmation.  Nothing wrong with locking today, based on the best pricing in a couple of weeks, risk tolerant borrowers might be rewarded by floating overnight.  Flip a coin, we could go either way from here.