Mortgage Rates Riding the Seesaw

Mortgage rates are basically in this tight range where it goes either up or down.  Yesterday, stock indexes were lower, the 10yr and MBS prices increased. Tuesday, stock indexes jumped and the 10yr note and MBS prices declined. It is a seesaw trade now, every other day rotating back and forth. Weekly claims were released and were about in line with forecasts. The 4-week average declined, -2750K to 237.50K from 240.50K the prior week.

Thus far today, the stock indexes traded higher, the DJIA up 65 points from yesterday’s close. The focus today will be on the beginning of the Jackson Hole global economic annual symposium - nothing of crucial importance today. Tomorrow, the focus will be on what Mario Draghi, ECB chair, will say, and lead markets to speculate that the bank is about to begin tapering of its QEs and thinking about increasing the base lending rate back above zero. Janet Yellen also a focus, with a possible reiteration that at the September FOMC meeting (Sept 19 and 20) the Fed will begin slowly reducing its balance sheet accumulated from the 2008 financial crisis. Some concerns that it will upset markets but the Fed’s policy comment a few months ago called for a reduction of monthly treasuries of $6B and $4B of MBS purchases by not reinvesting principal payments and run-offs back into the markets.

Existing home sales this morning mirrored the decline in new home sales released yesterday (-9.4%). Existing home sales as reported -1.3% to 5.44 mil units, the lowest level since August 2016. The median sales price at $258,300, up 6.2% yr./yr. Low inventories remain the key problem. Yr./yr. sales of existing home sales +2.1%. Existing home sales in June were revised from -1.8% to -2.0%. The reaction to the data took MBS prices to unchanged did hit the MBSs and 10yr negatively, but are basically unchanged since the open this morning.

There is a possible developing hurricane approaching the Texas coast where one-third of the US refineries are.  If it hits hard and closes refineries gasoline prices will spike.

There is a well-defined trading channel for the 10yr note. Some channels are not as clear as this one, and it does define the range short term traders are focusing on. Models still hold bullish biases and the momentum oscillators also modestly bullish. The fundamentals - better economic growth, central banks increasingly working toward reducing market supports, the Fed officials still talking about a rate increase on one side.  The lack of inflation and the lack of any rational explanation, as well as the universal belief stocks are over-bought keeping interest rates from increasing. The proof of the pudding is in the eating and right now, rate markets are still positive with little to no selling, but also no major buying at these historically low levels. Investors are willing to park some money in safe trades these days - the yen, gold, and US Treasuries.

Mortgage rates have been flat for the week and I expect more of the same today with very little volatility. Tomorrow's volatility could spike when Yellen and Draghi speak.