Mortgage Rates Higher Today

Mortgage rates moved moderately higher today, and most of the blame goes to the presidential election in France.  If you are wondering what European politics must do with mortgage rates in the US, you are not alone. 

Stocks around the globe rallied, in the US indexes were on fire through the session. The US 10yr yield increased, MBS prices dropped. Over the past few weeks risks had risen in the eyes of investor and traders with North Korea, Syria, Afghanistan, and the elections in France. Le Pen won in the initial vote but current polls now have her a huge loser in two weeks when the final election is held.  She wanted to exit the EU but now that appears highly unlikely with the centrist Emmanuel Macron expected to win by a 68% majority. Presently all those risk concerns are over. This started to come into play the later part of last week as the demand for safety was waning.

Beside a lot of key economic data this week, the Government is set to close unless there is a debt extension. Trump will release his tax cut program on Wednesday, at least that is what he is saying now. The border wall is one issue that has opposition. Congress returned from two weeks of paid holiday today, so far nothing but partisan rhetoric and no nothing accomplished except the Supreme Court nominee Gorsuch approved. The idea of a tax cut bill, I will continue to point out, is unlikely until the end of the year, if then. Trump wants corporate tax rates cut and personal income taxes lowered - easy to say but very difficult to accomplish in this partisan environment in Washington.  Fiscal spending with the US debt so high ($4.5 trillion) is also going to be difficult and more pushback from Democrats. De-regulation, probably the easiest of all to get done, will also not be a walk in the park.

Today’s increase in rates and the strong stock market rally may be overdone. The 10yr note yield increased to 2.31% but this afternoon backed off to 2.27% and MBS prices bounced back into positive territory. Other than the relief that France will not leave the EU the stock market has seen a lot of short-covering today but there is nothing on the economic front in the US that has changed. With Trump’s budget scheduled on Wednesday and potential government shut down on Friday nothing has changed.

In summary, traders put some risk back on the table (buying stocks, selling bonds) today as France's election results lowered odds for a French EU departure.  While the losses are hardly huge, they do mark our 5th consecutive down day, which is worrisome.  Floating borrowers need to be realistic, today may be the best pricing we see until the next global/fiscal/economic drama.  I am at a point that if you are closing in the next 30 days, take your chips off the table and cash out while you are ahead.