Mortgage Rates Trending Higher - Nothing New

Mortgage rates are trending slightly higher this morning, which is nothing new as this is again following the same pattern as before.  Yesterday the bond and mortgage markets improved, the 10yr dropped its yield to 2.41% and MBSs were higher getting back half what it lost last week.  Yesterday the dollar under pressure, stock indexes a little weaker and news that hedge funds were lightening up on the bets for higher rates while money managers were buying 5yr to balance their portfolios that are heavy with stocks. Trump backed away from the TPP trade pact and met with business and union leaders - this morning he is meeting auto executives he wants autos sold in the US to be made in the US. A very high hurdle but you cannot get anything unless you ask. Also today Trump intends to sign two executive actions that would advance construction of the Keystone XL and Dakota Access pipelines. He wants more oil companies to have more freedom to expand infrastructure and transportation efficiency.

In the UK its Supreme Court ruled that the government must bring the Brexit to a vote in parliament before it can trigger Article 50 of the EU charter. Theresa May though said she will go forward to trigger the exit in March sticking with her plan. Ministers could bring forward an Article 50 bill as early as Wednesday, with an accelerated passage through both houses of parliament in a bid to meet the prime minister’s deadline for initiating the Brexit process. The consensus is that parliament will vote to continue the process.

This morning’s data showed the Preliminary Markit Manufacturing PMI was stronger than expected and a nice gain over December's reading. The concern with this report is that input costs jumped to their highest levels in 28 months. The January Richmond Fed Manufacturing Index was stronger than expected as well.

December Existing Home Sales were a tad lighter than expected but this is not due to lack of demand or mortgage rates. It is due to the fact that the supply of available homes for purchase dropped to a 17-month low. The median price moved up 4% from this time last year to $232,200. First time home buyers made up 32% of all sales.

Today we kick off three days of dumping our debt into the market place. We start off with our short-term 2-year note.

Nothing else scheduled today, news from the White House and more confirmation hearings in the Senate. Trump intends to keep FBI Director James Comey in his post, the New York Times reported on Tuesday, as the bureau continues its investigation into potential ties between Trump aides and the Russian government.

The stock market a little better in early trade but looks heavy so far. The dollar better today after weakness yesterday. Last week Yellen said the increases would be “gradual” - gradual does suggest a hike in March if the Fed does move three times this year. The FOMC meets about every six weeks so if it going to be gradual it has to start soon or getting three in before year end would imply quick moves later this year. All that said, the Fed talks the talk but for three years has not been able to walk the walk.

I still expect continued mortgage rate volatility today.  Yesterday we had volatility and we ended with better mortgage rates.  Today I expect volatility resulting in slightly worse mortgage rates.  Mortgage rates continue to trend sideways and I do not expect the strong manufacturing numbers today to be enough to push us out of this tight range. Currently at 11:00AM, we are at 2.45% on the 10yr and MBSs have lost 26BPS.