Mortgage Rates Waiting for Tomorrow's Announcement

Mortgage rates moved lower today, despite slightly weaker underlying bond markets.  This has been an ongoing phenomenon in recent days.  Bonds improve, implying lower mortgage rates, but banks wait to drop rates until bond market improvement is vetted.

There was nothing new of significance today. Markets and media continue to try and handicap what will happen next. Senate leader McConnell said at the White House that the Senate will have a vote next week on the health care bill. The vote according to McConnell will allow for amendments.  It is not expected to change anything but the voting will be recorded for posterity and apparently to allow the Senate to move on to other issues. The decision to hold the vote next week was made at the request of President Trump and Vice President Pence. More political posturing that wastes more time.

Tax cut plans have not been formally released by the Trump administration and according to reports today there will not be a package until September. Already the opposition is building among some Democrats, calling it a tax cut for the rich. You can see where this is going already.

The WSJ reported today about the unending increase in US stocks.  Hmmm – Have I not been talking about it for weeks. The three main global indexes, the S&P 500, MSCI Europe and MSCI Asia-Pacific ex-Japan – has gone a calendar year without falling at some point by at least 5%.  The US market is as over-bought as I have seen in my 30 years of finance and 20 years in the mortgage banking business - it was not as technically over-bought in 1987 as it is today. 1987 saw the DJIA decline almost 50% and led to panic on Wall Street that led to the end of a dozen Wall Street brokerage firms. Of course, 2017 is only a little more than half over, and plenty can change in the back half of the year. You may think I am paranoid – but I am just trying to handicap the next strong decline in US interest rates that will occur when or if the US markets enter a correction. The higher the indexes climb the greater the falls will be and the panic into safe havens will push US rates lower than many imagine currently.

The ECB will meet tomorrow. Today the bank of Japan began a two-day meeting. Both central banks should be focusing on the currency markets, the dollar has collapsed against the yen and has been losing ground against the euro currency. Granted, domestic events and monetary policy have a more direct effect on rates in the US, but global bond markets are interconnected.  Any major shock in the EU will be felt in US bond markets, and consequently, mortgage rates.  Some investors are concerned the ECB will allude to plans to taper its bond purchases.  While no official plans are likely to be announced tomorrow, the "clues" offered by ECB President Mario Draghi could cause volatility in rates, for better or worse.

In summary, bond markets were flat today following Tuesday's surprise rally.  My pricing did improve slightly, which is not unusual since secondary desks often view one-day rallies with suspicion.  Tomorrow brings both ECB and Bank of Japan policy announcements, which could well determine where rates go from here.  It's tempting to lock here, especially for those within 30 days of closing.  Sometimes, you have to roll the dice – we will see.