Mortgage Rates Suffered Again

Mortgage rates moved higher for a 4th straight day as we saw huge selling in MBSs this afternoon. I expected it to be quiet this afternoon, and it was - until about 1:15PM. The 10yr sat idly until this afternoon heading into what many will have a 4-day holiday, then it increased to 2.30%.  Crude oil is adding to the technical weakness in the bond market, up over a $1.00 this afternoon with those re-occurring views that OPEC will lower supply. The stock market opened better, then slipped a little but this afternoon the indexes regained strength, until the very end.

Volatility!  Trading in MBSs is as thin as a strand of hair and as such this afternoon prices were riding the waves - as prices swinging as much as 5BPS per tick to end the month of June.  In terms of upward movement, this has been the worst week for mortgage rates since early March 2017. 

The increase in interest rates this week is not oil prices or better data as we had today with the Chicago PM index or the consumer sentiment index - or yesterday that Q1 GDP increased from 1.2% to 1.4%. This is about central banks led this week by the ECB comments. Although the ECB sent mixed signals markets are taking it along with the Fed that the banks are going to begin withdrawing support that has been the situation for years. Forget about that the US and global economies are not growing much and likely, will not grow much more than 2.0% this or next year. Central banks are going to move regardless - at least that is the ephemeral idea now. Tie it to the long weekend in the US and technical bearish, the rate market suffered.

In summary, whereas the lock/float outlook had been calm and steady heading into this week, it quickly turned defensive as losses mounted.  There are multiple justifications for the weakness ranging from European Central Bank "taper talk" to an overabundance of trading positions in favor of lower rates earlier in the week (which makes rates susceptible to the sort of correction we are seeing now).  Assume rates can continue higher until we see a definitive ceiling take shape.  The earliest that could happen would be the end of next week.  The last corrective uptrend in rates lasted 3.5 weeks – and next week is Jobs Week.