Mortgage Rates in Tight Range Nearing 2017 Lows

Mortgage rates fell to new lows for the year today, following the North Korea nuclear threat headlines.  I say that this did give it a boost, but rates were drifting to lower levels even before yesterday's news broke.  Additionally, the improvements are still too small to be translating to NOTE rates themselves.  Instead, it's the upfront costs that are allowing for fine-tuning adjustments. 

The upper momentum due to concern over North Korea did help our pricing but cooled off as markets became less concerned amount an event taking place.  We had a soft 10yr note auction and WTI made a run at $50 (49.53) both our ceiling of resistance and our floor of support in our proprietary intra-day trading channel as both levels were tested and both have held so far.

The bonds that underlie mortgage rates tend to stick close to US Treasuries.  That wasn't the case in the run up to (and away from) the financial crisis, but the relationship has been well-established for years now.  As such, we can look to the far more robust and active Treasury market or clues about rate momentum.  There we see 10yr Treasury yields (the most quintessential benchmark for longer-term rates) having a hard time breaking below the recent floor around 2.21%. 

President Trump said "...North Korean threats will be met with Fire and Fury".  North Korea responds that it is ready to hit Guam if the U.S. is a meanie.  This "saber rattling" has caused a huge "flight to safety" into bonds.

In summary, not even the potential conflict with North Korea can make bonds break the current floor around 2.22% on the benchmark 10yr note.  We are still firmly stalled in the recent 2.22-2.28% on treasury yields.  It is important to remember that these incremental price changes rarely impact actual rates – but often alter borrowers' lender credits/discount points.  We get pertinent inflation data on Friday, be ready for potential rate changes then.  When the floor is being hit, it might be good to lock.