Mortgage Rates A Little Better This Morning

Mortgage rates are fractionally better today after strong selling in the bond and mortgage markets on Monday, as well as following last week’s movement in rates. Not much news this morning that markets are concerned about. We did get May factory orders missing its mark as expected, but is generally not a major factor when it comes to pricing.  Everyone is waiting for the FOMC to release the minutes from its meeting at 1:00PM.

Over the holiday, news that North Korea launched a missile that has the range to reach the US (Alaska). The U.S. warned the hermit nation that it is ready to fight if provoked. The top American military commander in South Korea said in a statement Wednesday that the U.S. and South Korea are prepared to go to war with the North if given the order. Hardly seems possible these days, but North Korea cannot even be controlled by China, its chief and only ally - but as Trump would say, Kim Jong Un’s regime is a “nut job.” So far, markets and investors are not taking it seriously in terms of adjusting trades or outlooks. The United Nations Security Council is scheduled to hold a meeting on North Korea later today.

Today Pres. Trump leaves to attend the G-20 meeting in Poland that will likely have a lot of focus on US trade agreements that Trump and others believe are unfair to the US and need to be renegotiated. Trump will also meet Putin for the first time later this week; likely the two will discuss the North Korean escalation of global tensions.

The WSJ today talking about the Fed and its plans to taper its balance sheet. Not new news, but worth reprising. The September FOMC meeting is the expected start of when the Fed will begin to unwind its $4.5 trillion balance sheet that blew up from $800B in 2007 with the massive purchases of treasuries and MBSs to fend off a deeper recession. As noted by numerous Fed officials and Janet Yellen recently, the plan is to begin not reinvesting principal payments back into more purchases; $6B a month on treasuries and $4B a month of MBSs. Reducing the balance sheet, according to Fed comments, will be gradual and take a very long time to accomplish.

Oil prices have increased 11% in the last eight sessions. This morning, crude has reversed and is lower on comments from Russia that it was opposed to any proposal to deepen OPEC-led production cuts. Still the same wider dynamics - more oil than can be consumed and producers will continue to pump as long as it is profitable. Crude was up over $3.00 last week as short positions were unwound on remarks from OPEC. The only way the price will climb to those lofty levels ($100, or even $70.00) is if demand increases.

One week ago, last Monday, the 10yr note rate traded at 2.12%, this morning at 2.35%. Mortgage rates have increased in rate. It started with comments out of the ECB that more than doubled the 10yr German bund to 0.47% from 0.23% prior to ECB commenting on the possibility of beginning to end its QE and negative base interest rates. Then the Fed, on a march to increase the US Federal Funds rate and increasing talk that the Fed will begin tapering its monthly buying of treasuries and MBSs. 

Right now, it all looks negative, and mortgage rates could move rather significantly today on the release of the Fed Minutes.  I would suggest staying with my comment – Lock them up.