Mortgage Rates Improve - 10yr Below 2.35%

Mortgage rates continue to improve as we have seen some nice gains in the last three days. With this latest move, we are nearly at the same rates where we were nearly three months ago, just after the election.  There are plenty of opinions about what's behind this week's falling rates ranging from politics to last week's jobs report causing a shift in Fed rate hike expectations.  All that matters are that investors have shifted to a more risk-averse stance resulting in better demand for less risky assets like bonds.  Higher demand for bonds means lower rates.

Treasury sold $23B of new 10yr notes this afternoon, but it was not the strongest auction we have seen. The initial reaction put some pressure on the 10yr but it rebounded back to pre-auction levels an hour later.  

Rates are working lower surprising a few.  With all the geo-political issues in play with the EU region leading, France, Germany, Netherlands all have elections coming up and the UK a few weeks away from officially triggering Article 50 of the EU charter to begin withdrawing. Adding support to the US bond markets - the Greek and Italian debt is once again on the table. Greece must meet strict fiscal targets to unlock more financial aid and keep the International Monetary Fund in the mix.

Tomorrow weekly jobless claims is not a market-mover these days. December wholesale inventories and the Treasury will auction $15B of new 30yr bonds at Noon. Another day with only secondary issues. The stock market continues to look heavy but still holds well and so far, no strong selling. Living the dream that Trump will make all things all right was way too much optimism for me - and I expect I will not be in the minority for much longer.

In summary, I stated yesterday that I would like to see this run continue to 2.35% and it did, and we closed at 2.34%.  Now what?  In the past 30 days, we have not managed a close under 2.35, you need to go all the way back to late Nov. to find a 10yr yield under 2.35.  There is a good chance this will be our floor for a little while so this could be a very good locking opportunity.  If we manage to break 2.30, then I do not see much support until we get to the 2.1’s so float on.  Longer term locks would probably do well to float and see how this pans out.  I think reward outweighs current risk.