Mortgage Rates Stay in Tight Pattern

Mortgage rates moved lower for a 2nd straight day.  This helped with a lot of the damage that we had during the first three days of the week.  There were no significant economic reports or market-moving headlines today as markets were instead focused on limiting their exposure to volatility over the upcoming three-day weekend. 

This pattern is becoming almost predictable – as we have seen in three out of the last four weeks - after a lot of weekly volatility, by the end of the week there was (is) no change in the bond and mortgage markets. Today and yesterday the 10yr note yield declined 8BPS in yield and MBS prices increased 41BPS. The dollar this week bounced around and is ending the week slightly lower, but the intraday volatility as in the bond market, registered wide swings this week. Inflation was on special this week - January PPI and CPI both at the highest reads since 2012 and 2013 respectively. January housing starts were lower, and February Philly Fed business index reported the highest index reading since 1984. January retail sales stronger than forecasts. On the soft side the NAHB Feb housing market index was disappointing as it declined to the lowest reading in five months.

Improvement in the bond and mortgage markets yesterday and today driven mainly on increasing concerns that the US equity markets are running out of steam. The models are still bearish but momentum oscillators have returned to neutral from negative. The thing is, interest rates are going nowhere – trading in a very tight range.  All the while stocks shot up like a rocket on the 4th of July - strongly implying that money still resides in fixed incomes as security against a potential reversal in the stock market, and even the threat of a Fed move next month to increase the FF rate (although most do not expect the Fed will act). Some Fed officials are talking three increases this year while Janet Yellen continues to say the moves higher will be gradual. There are only four FOMC meetings this year with a press conference after the meeting (March, June, Sept, and Dec). I do not expect three increases, two at most. 

Markets are closed on Monday (President’s Day). Tuesday, the Treasury starts its bi-weekly borrowing with a 2yr note. Wednesday a 5yr auction, January existing home sales. Thursday a 7yr note auction, weekly jobless claims, December FHFA home price index. Friday January new home sales. The week has little key data other than January housing numbers.

In summary, one must really look at their own risk factors and weight them against the “what ifs” and the “right now”.  We have been basically sideways for three months now.  Playing the range trade with lock and float decisions has worked out very well for those paying attention.  I would continue to do the same until something changes.  If you can stomach the news, do so with caution, but I must say again - DO NOT GET GREEDY!