Mortgage Rates Sideways - No Follow Through from Friday

Mortgage rates are trending sideways this morning.  Last week on Friday we had a nice rally on weaker than expected April retail sales and less inflation increase on April CPI. This morning after the 10yr is at its pivotal point. This morning stock indexes opened better and there was no follow-through from Friday in the bond and mortgage markets. Pushing rates below 2.32% will be testy and dependent on weaker economic data and a turn in the equity markets. Since the election last November investors are driving stock indexes higher - although recently mostly flat-lining (consolidating). Earnings reports from public companies helping equities with most earnings and forward guidance have beaten forecasts.

The biggest issues this week will be geopolitical from the events overseas as they continue to be one of the major driving forces for the direction of morning rates. Fear over China, North Korea and the fate of the Eurozone has kept MBS at very elevated levels. The odds that the rug will be pulled out from under MBS due to a retreat in fear is very small. North Korea just launched another missile and claims they can handle a nuclear payload. Meanwhile, in Europe, the newly elected French President has appointed a new President, and Germany's Merkel has won a crucial state election on her way to the national election in September. Both will reduce the Eurozone fear a smidge. Any movement in Taxes or Health Care in the U.S. also could play a role.

Oil prices can have a substantial impact on mortgage rates. As they fall, there’s much less threat of inflation, which bonds love. As they move higher, the risk of inflation increases which bonds hate. Right now, both Saudi Arabia and Russia are pushing to extend OPECs "freeze" in production which has stabilized WTI Oil from a free fall two weeks ago. If prices crack back above $50, then MBS could feel a little pressure (higher mortgage rates).

Even though we do not have any major U.S. economic releases this week that can impact mortgage rates, there’s plenty to digest from overseas as their monies over there can find haven here and drive prices lower. The two reports this morning, the May NY Empire State Manufacturing Index and May NAHB were basically reported as expected.

We have a very light domestic economic schedule this week that lacks any big-name releases that have the gravitas to impact mortgage rates. For the past four weeks, our weekly change has been slightly negative, but the reversal Friday certainly help bring some of it back into perspective. But will we see lower rates?  The good news though is that geopolitical fear has kept the MBS at elevated levels (low mortgage rates). Look for MBS to be in the same relative range that we have seen unless something from overseas implodes. I am disappointed that there was no follow-through from Friday as the traders seem that what they did was enough.  I am still recommending a FLOAT, but stay in touch to see what may happen.