Mortgage Rates Heading Near 2017 Lows

Mortgage rates started to make a move late this morning and continued throughout the day, but remained well inside the narrow range that's been intact for the last several weeks.  

MBS prices were 20BPS higher by the end of the day while the 10yr closed at 2.28%. Even with FOMC tomorrow and ADP’s April private jobs there is no massive selling in treasuries but no huge buyers either. The simple majority still thinks the Fed will increase rates two more times this year with most thinking June will be the next move. So far where the rubber meets the road (what money is doing) there is not complete belief in that view.  One thing you can bet on is the Fed will not increase rates again until markets are fully expecting it.  The Fed’s history is not to upset markets (too political and not good for investors’ pocket books. At the moment, not many are not expecting the Fed will increase rates in June - but there are a lot data points between now and then.

The stock market recently has been marking time, watching the earnings reports, and investors in equities are more positive that the economy will improve nicely though the rest of the year.  In the bond market where more prudent and well informed money goes, that certainty is mot there. No inflation yet, and some of us doubt there will be much through the rest of the year. That view is contra to the multitudes out there now. Last week the ECB did not change their guidance and did not begin to suggest it will start thinking about removing QEs or increase rates. Mario Draghi still does not believe inflation has any kind of toehold in the EU. 

On inflation, it is not in crude oil as we saw another decline today - the price the lowest level in five months. The only move would be if the dollar declines substantially - crude will increase as crude is dollar sensitive. 

In summary, bonds rebounded today, posting moderate gains, but failed to break previous resistance levels.  Sitting within recent ranges, but near rates' recent lows, given tomorrow's Fed announcement and Friday's April NFP jobs report, I am still standing pat with lock now for the next 30 days.  These two events can be market movers, and you do not want to be caught on the wrong side of the fence.