Mortgage Rates Technically Better

Technically the bond and mortgage markets continue to hold positive momentum until late this afternoon.  Shortly after the Treasury announced the results of their 30yr bond auction, the markets started to pull back erasing all the gains from today as MBSs closed at a -3BPS.  The 10yr closed higher at 2.36%. Today the 10 declined to 2.32% below its 40-day average and traded below its technical resistance at 2.35%. The driver was weaker stock indexes, at one point this morning the DJIA traded down 183 points. This afternoon buying re-surfaced and the indexes improved although lower on the session. The 10yr yield followed in lock-step increasing as the stock market found footing.

Volatility in stocks and interest rates jumped yesterday and continued today after Trump’s news conference. He is taking heat about not completely divesting himself from his business. The long explanation yesterday by his attorney did not go down well with the opposition and even some in the Republican party. His drug prices comments sent big pharma’s down yesterday and today a little rebound. As we move closer to his inauguration and the testimony from is cabinet picks the feel good thoughts are waning - not unusual but since he won markets have gone completely overboard with optimism, that is now being re-thought by investors.

Today’s 30yr bond auction did not meet the demand that the 10yr did yesterday.

The Senate has taken the first steps towards scrapping President Barack Obama’s flagship healthcare reforms, passing an outline budget for 2017 which will allow the law to be gutted without delays by Democrats. The late-night budget vote instructed key committees to come up with replacement legislation for the Affordable Care Act. It sets the stage for a special “reconciliation bill” which will be used to repeal significant parts of the healthcare reforms and critically, because of the voting rules on such legislation, will be immune from filibustering by Democrats.

Tomorrow markets get data and its Friday the 13th. December retail sales, December PPI, November Business Inventories, and the U. of Michigan md-month consumer sentiment index.  If you remember, the consumer confidence index released on Dec 27th jumped to its highest level since August 2001.  

Pushing interest rate down is and will be a herculean task.  Hardly any economist, analyst or trader has any positive outlook for interest rates. Pushing on that wet noodle now but near term price action has tilted toward at least a cooling of interest rate increases. Today a good example.  If stocks hold up and find buying the rate markets cannot overcome them.

In summary, we have seen the new supply of Treasuries and they are out of the way.  Some early indicators I have read are showing that tomorrow’s retail sales data may be weaker which could benefit rates further. suggested to float unless you are to close in the next 15 days, and with the increased volatility, the risk may be outweighing the reward.