Mortgage Rates Still In Narrow Range

Rate markets opened early this morning unchanged from yesterday’s improvement. Yesterday the 10yr  declined to 2.24% and MBSs increased nicely.  However, as I mentioned last night, we are still in this tight narrow range, holding nicely as stock indexes continue to increase. Yesterday the FOMC minutes were touted as being affirmative that the Fed would increase rates at its June meeting, however, I still have my doubts on this. The Fed always falls back to its well-worn mantra of being data dependent.

World stocks hit record highs on Thursday, and the dollar dipped after the U.S. Federal Reserve signaled caution in raising interest rates. Will the Fed buckle and keep rates at present levels and not move? Based on trading in the federal funds futures markets the likelihood now is that the Fed will move. Federal funds futures imply traders see an 83 percent chance of a rate rise in June and a 46 percent probability of two increases by the end of 2017, according to the CME Group's FedWatch tool. There is still a lot of key data to be reported before markets will be convinced.

This morning's weekly claims, a report that used to carry weight but now relegated to the end of the line, up 1K to 234K. With the unemployment rate at 4.0%, it is considered full employment by many analysts, so weekly does not matter as much as it did when unemployment was at 6%. The April US trade deficit at -$67.6B was higher than -$64.6B expected. Retail inventories fell in April with motor vehicles leading the way. Wholesale inventories fell also in April, split between both durable goods and for nondurables.

OPEC met and did what was thought and agreed to continue the output cuts from last November for an additional 9 months.  Crude price this morning a little lower due to some in oil trading which were betting OPEC would increase the output cuts. OPEC ran out of gas two years ago when US shale production and production in Canada changed the playing field with massive increases in output.

At Noon, the Treasury will auction $28B of 7yr.  Demand for US treasuries has been evident the last two days with very strong bidding for the 2 and 5 yr auctions. Two weeks ago, Treasury sold 3s, 10s and 30s none of them met with much demand.

Not any changes in interest rates this week and likely tomorrow will also be flat. There are key data releases tomorrow, but unless they are well off the estimates with the holiday coming and an early close tomorrow, I do not expect much movement in the bond and mortgage markets. US Treasuries are holding very well in the face of potential federal funds increases and strong equity markets around the world. One support not getting media or analyst attention we believe is that geopolitical tensions remain at high levels. N Korea is continuing its massive, and now considered successful, production of ballistic missiles.  The US is sending warships into the South China Sea for the first time in the Trump administration and increasing threats of more terrorist activity.

At this time, I am still holding onto the caution of floating, but you have determine if you want to enjoy the Bar-B-Que this weekend, or hold onto what your gut may be saying and hope that it is true.