Mortgage Rates Up a Bit Following the News of the Day

Mortgage rates rose modestly today after spending the last several days at the lowest levels we have seen in eight months.  Even though the Comey testimony today not have a direct market impact, financial markets were tuned in to this and other key events that caused this volatility for rates today. 

It was interesting to watch how Comey laid out how the believes the Trump administration fired him. As you know it was over the Flynn investigation that Comey believes Trump asked him to end it. He said the White House “chose to defame me” and lied when it said that the FBI was in disarray and had lost confidence in its leader - the reason he was fired was over the Russia investigation. Comey believed that he was being directed to do what Trump wanted - end Flynn and the Russia issue over the election. He said he told Trump that he (Trump) was not a subject of the FBI investigation. He admitted he was a leaker of memos of his meetings with Trump to the news media, using a friend as an intermediary, to get a special counsel appointed. He did not name that person but identified him as a Columbia University law professor.

This is likely to be going on for a while. Trump’s attorney refuted much of what Comey said. Those wanting Trump to be a subject obstruction of justice will focus on those issues while those that did not believe it will build their case. Media will dig deep into every word said. As far as markets are concerned so far it is not much of a deal but this is not going away. The negative now is that Congress may not likely to get to work on any if the administration initiatives, delaying those key issues that have revved up markets. At the end of the day, there was no smoking gun.

Britain’s voters went to the polls today in a general election that Theresa May hopes will give her a much-increased majority. No results yet.

The ECB this morning left interest rates unchanged and Draghi said he would keep the QEs going to the end of the year and is still concerned about the low level of inflation. Yellen also must be concerned. Next week the Comey issues will take a back seat to the FOMC that will increase the FF rate by 0.25%. That is not the concern, it is about what the future looks like for the Fed. Until recently the majority consensus from Fed officials and markets was that the Fed would move next week and then again in September. It will end up to still be in the air and the Fed policy statement and Yellen’s press conference will continue to say that it is data dependent when the next tightening and will happen and when the Fed will begin reducing its $4.5 trillion balance sheet.

In summary, everything turned out to be less dramatic than it might have been.  In the bigger picture, we are left with rates still very close to the lowest levels of 2017.  But without the convincing break to new lows, there is a risk that momentum in rates will now shift higher. I remain bullish on the bond and mortgage markets but unless something new occurs, I do not expect much movement until at least next Wednesday when the FOMC meeting concludes. Floating is getting incrementally riskier.  If you choose to float, make sure you have a plan in place to lock in.