Mortgage Rates Moving Lower

Mortgage rates are moving lower so far today as we have seen a better start in the bond and mortgage markets this morning with some pressure on US stock indexes.

Weekly jobless claims increased as expected from the previous week, but not as much as was anticipated after last week’s large decline.  Claims this time of the year with holidays is difficult to get a real handle on them – regardless, claims are very low. December import prices did not increase as much as expected, and December export prices came in higher than expected.

This morning on CNBC St. Louis Fed President Bullard commented, and agreed with what I have been thinking, that the Trump agenda will not likely have much impact on the economy in 2017. Interest rates jumped recently on the idea that 2017 with tax cuts deregulation and fiscal spending would drive the US economy in 2017.  The problem is that several us see that none of the plans will happen as rapidly as markets have expected. The 10yr note yield increased from 1.80% the day of the election to 2.60% before slowly declining in the last three weeks.  Mortgage rates spiked with the 10yr but have also receded with the improvement on the 10yr. Trump has said numerous times he believes the Fed should have more business experience among policymakers. Bullard agreed, saying it would be great to have a mix of people in the Fed. "You don't want everyone to be a clone. You want a variety of backgrounds. I think we have that now. If we could get more of that, I think that would probably be a strength for the organization," he added.  I know that this is contrary to my belief that when people like this talk, I cringe, but I gather since he is from St. Louis, and he made sense, I am putting it in this report.  Two other Fedsters will be on the agenda this morning. 

A lot of push back today after yesterday’s press conference; most focus on Trump’s reluctance to completely divest himself from all is businesses. Even though Trump is not bound to the same standards other cabinet members and key positions must adhere to.  Other previous presidents have followed the intent of the conflict of interests concerns by divesting from any other possible conflicts - none of the previous presidents were business men.

Treasury sold 10s yesterday that met with strong demand.  This afternoon Treasury will sell $12B of 30yr bonds, and I expect it will also be met with good demand particularly from foreign investors. Yesterday prior to the Trump press conference the dollar was stronger against most other currencies, after his conference the dollar plunged. Another warning sign that maybe markets have exceeded reality.

This morning at 11:00AM, the 10yr has broken down below its 40-day average adding additional technical strength. It is currently at 2.32% with MBSs again positive at a +24BPS.  I am looking for average mortgage rate volatility today. So far today we have seen some good gains in the MBS market (lower mortgage rates) and do not expect any news today that should reverse that trend.  Might be good to float – but with caution.