Mortgage Bonds Favoring Lower Rates This Morning

Mortgage rates are slightly lower so far today as we saw early with lower stock indexes in the futures markets, and the lower dollar.  Last week we had some volatility, but the markets basically ended where they started.  So far this morning at 11:00AM, we have seen a nice increase in MBSs to +18BPS (but was much higher earlier) and the 10yr fluctuating down to 2.33%.

Several issues that may be of interest this week, and it starts overseas as the spot light is on Great Brittan and the EU. The European Central Bank will have their latest interest rate decision and policy statement on Thursday morning. Bond traders hope to learn more about the path and timing of their revised asset purchase program that they announced at their last meeting. Prime Minister Teresa May started us out today as she addressed the impending Brexit. She reaffirmed that Great Brittan will leave the EU's single market but that UKs parliament will vote on the final plan. She also said that it will be a "clean" Brexit. The British pound soared as a result.

There is no question that Trump's comments have been moving markets and will continue to do so. His latest comments that our dollar is too strong has caused the dollar to move lower. The key will be Friday's Inauguration. Donald Trump will take the Oath of Office at exactly noon Eastern Time. After that brief oath, he is officially in power as our President. So, any comments in his Address to the Nation will carry even more weight than previously because now many traders will view them as preceding official policy changes and some will be official policy immediately. This will have a dramatic impact on pricing in the afternoon. We will also hear from the Fed Chair Janet Yellen and our Treasury Secretary Jack Lew this week as well.

There are only a few economic events that are planned that have the power to significantly move mortgage rates and increase volatility. The Consumer Price Index is one of them and that is due out tomorrow at 7:30AM.  We all need to keep a close eye on those numbers.  Mortgage rates should trade in the same narrow range through the rest of the day.

The dollar is weaker, stocks are weaker - both a little support for the bond and mortgage markets but neither the dollar or the stock market is in any danger of reversing the larger trend. With inauguration on Friday the time is narrowing for all of the good time views that have driven stocks higher. Technically the 10yr and MBSs have a slight near term positive bias but the 10yr, leader for MBSs has rock hard resistance at 2.35% on a closing basis. Real yields, which subtract inflation readings from the 10yr U.S. Treasury note’s yield, have dropped to a recent 0.38% from 0.74% at their mid-December post-election high. Real yields tend to rise with a strengthening economy, as I have been noting here, once Trump takes office the expectations that were built in stocks will wane and we believe it already is getting underway. The yield decline and a recent pullback in the U.S. dollar’s value suggest that investors are reassessing their initial enthusiasm for the so-called Trump trade, in which expectations of higher growth and inflation fueled sharp gains in U.S. stock indexes, the dollar and the prices of many commodities.