Mortgage Rates Higher Following Treasury Auction Today

Mortgage rates were steady to slightly higher again today, making it the 13th out of the past 16 business days without an improvement.  The situation was more palatable earlier this morning, but as the day progressed, I had warned yesterday that if the 10yr note auction was weak, there would be a spike in MBS’s and the 10yr yield.  We saw it take off just after the Noon hour as MBSs ended the day at a minus 25BPS and the 10yr at 2.42%.  

   

First, the firing of Comey at the FBI was meat for the media and politicians but has, and will not have, any impact on markets. The argument that it will slow tax cuts, fiscal spending, health care and deregulation is wrong. Democrats have been railing about Comey since the election and will not make a big deal out of the firing. It is likely now that there will be an independent investigation into Russia/Trump - probably something that needs to happen regardless.  

Another Fed official out today with an opinion.  The hawkish Boston Fed Pres. Eric Rosengren today with what was a strange comment on increasing interest rates and the Fed beginning to back off increasing its balance sheet. Rosengren is one of the more realistic Fed Presidents - but his remarks today were questionable.  Nevertheless, markets and traders were focused. He commented he thought the Fed should increase the FF rate three more times this year – which made me scratch my head on why he thinks this should happen. Three rate hikes this year is anything but gradual as there are just five more FOMC meetings this year - at that rate it would be a rate increase from three of those meetings and that is not likely to occur - and I suspect he knows it. 

Crude oil, declining recently, increased $1.56 today on weekly crude oil inventories declining 5 million barrels, a lot more than oil traders were expecting and a lot of short positions were blown out.  

Tomorrow we get April PPI and Weekly jobless claims, and the Treasury will complete the quarterly refunding with $15B of 30yr bonds at Noon.

Rate markets remain slightly bearish but for everything happening with better data and some seeing inflation into the Fed’s range.  The bellwether 10yr is still holding well, even though it is at 2.42%. Money is staying in safety arms even with relaxed geo-political situations. Markets do not pay much attention to the Fed’s comments like we had today with Eric Rosengren’ s opinion of three more rate increases this year (not going to happen). The ECB in no hurry to begin taking back QEs or the -0.4% base lending rate even with the EU economy improving. That said, unless a black swan occurs or stocks come under heavy and prolonged selling - there is little to expect a substantial decline in mortgage rates from current levels any time soon.

In summary, a near dismal treasury auction today reinforced bonds' multi-week swoon.  While the sell-off has been orderly, it still adds up, and pricing seemingly deteriorates daily.  Nothing has changed on mine or my clients outlook.  Until this trend of higher rates ends, I will continue to lock once within 30 days of closing.  If you plan to float, you better hope for weaker economic data tomorrow and Friday.   One item working for floaters will be the new supply of treasury debt ends tomorrow.   Quite often rates rally once this supply is absorbed, but not so sure I would be relying on that happening.