Mortgage Rates Holding After Volatile Week

Mortgage rates were basically the same as they were yesterday, despite the wide swings we had throughout the day.  Nonetheless, the rates unfortunately have either risen or stayed the same this week as it wiped out the gains we saw last week.

The reason why we have seen this rapid increase is because of the market is so sure that a rate hike is happening this month.  Janet Yellen added her voice to a rate hike at the March meeting this afternoon.  There was no reaction to her speech.  Prior to her remarks, over the last week the consensus grew daily that it is time for a rate increase. The 10yr is still holding within its 20BPS range that has kept yields stable since the beginning of the year. MBS prices saw a bout of selling about noon today but since has moved back and closed up +17BPS, while the 10yr which opened at 2.51%, closed at 2.48%. The only thing Yellen and the Fed have to be concerned about now is the February employment report that will be released next Friday. A soft release may give pause to the Fed’s present plan to increase.

That's both good and bad.  The downside (a rapid move higher in rates this week) is out of the way.  On a positive note, because markets are so sure the hike will happen, the upside is that there's a smaller list of things that could hurt us in the near future.  Still, the list isn't empty.  The only thing Yellen and the Fed have to be concerned about now is the February employment report that will be released next Friday. A soft release may give pause to the Fed’s present plan to increase.  However, one must be aware that rates are near the upper limit of their recent range and there is still a risk they could attempt to break out of that range in the run up to the Fed meeting on March 15th.

This week we saw MBSs drop 95BPS and the 10yr go from 2.31% to 2.48%, basically what we have said all along, it went from the bottom of the range to the top now.  The dollar also had a wild ride, dollar yen weaker up 1.878 yen, dollar/euro -$0.0052, the dollar index however only up 0.16. The stock market is another animal that I will not try to comprehend as I feel it is too high, no matter what Buffet says (but he does have all the money and he is better at it than I am).

In summary, the bond markets sold off slightly today, as Chairwoman Yellen confirmed what Fed officials have been stating all week - economic conditions are strengthening, and Fed is likely to raise its overnight rate more than once this year.  Fortunately, this news was already priced into markets, otherwise pricing would have suffered more.  We are near the upper end of recent rate ranges, the $20 question is whether we bounce down or up from here.  Given that rates are at the highest level since end of December, I am playing defensively.  Floating could yield better pricing, but only if our upward trend breaks.  For now, I am waiting to see what happens Monday.