Mortgage Rates Still Near 2017 Lows

Mortgage rates remained in line within the 2017's lows today, despite noticeable improvement in underlying bond markets.  Under normal circumstances, bond market improvement equates fairly directly with mortgage rate improvement, but things are not exactly normal lately. 

There really has not been any real new news with the verbal war between the US and North Korea.  More threats but it is not that concern that is the prime driver in equities… so far. Unless there are some actual military movements - aircraft, ships or troops - or unless the nut job in North Korea makes any movement, the battle of threats is going to continue. The pivotal country is China - what will it do, if anything to defuse the nut job?  Pres. Trump, like him or not, unlike Pres Obama, is not concerned with political niceness, the nut job hopefully will see the difference compared how we fumbled in Syria (drawing the line) and with that Iran deal that has been shredded by Iran. Kim Jong Un seems to be trying out the US with threats. That all said, markets are not ignoring the threats and that may be the unexpected event that finally sets stock markets into major corrections.  A 10% correction in the DJIA is a 2,000-point decline and that would be a normal pullback after the huge gains this year.

Bridgewater Associates Founder Ray Dalio says in a LinkedIn blog post "risks are now rising" in the market and recommends gold as a hedge. He cited increasing geopolitical tensions between the US and North Korea. The firm manages about $160B, according to its website. Hedging the geo-political risks with gold, a good call but US treasures also a good hedge. 

No inflation as I expected, tensions with North Korea, an overbought stock market, and prospects for lower Q3 earnings have a grip on markets now. As you know we have been bullish on the bond market now for two weeks but not much movement either way until now. In one of our Reports last week we suggested loan originators begin dusting off their re-finance inquires, best to get started making those calls, the time is approaching.

Today the 10yr note, driver for mortgage rates broke that resistance at 2.23% and closed at 2.20%.  The drop today increases the technical bearishness. I have been floating now for over a week and will continue to float now. Tomorrow’s CPI data at 7:30AM carries a lot of load for the bond markets, another weak inflation reading after the PPI today should add more buying in the bond and mortgage markets.

In summary, I have been in a little bit of a risk mode for a few days which has benefited my clients – but we have an important piece of economic data in the morning for markets to digest.  Personally, with the level of risk seemingly heightened at the moment, you can play it safe and lock, but right now I like the gamble – unless you are closing in the next 15 days.