Mortgage Rates Feeling Pressure with North Korea Again in the News

Mortgage rates are moving lower thus far this morning as North Korea tensions are increasing once again.  Combine this with what is now facing Congress as it returns facing a number of key issues. Yesterday, US interest rates dropped to 2.16%, this morning continuing to fall with US markets open after the Labor Day holiday. In early trading this morning, the 10yr yield has pushed down to 2.09 at 11:00AM while the MBSs are following at a positive 37BPS. 

Sunday, North Korea said to have tested a hydrogen bomb, and news it was moving ICBMs closer to the South Korean border. The US calling for more sanctions, Putin said sanctions would be counter-productive and said threats of military action could trigger “a global catastrophe.” He renewed his call for talks, saying Pyongyang would not halt its missile testing program until it felt secure. South Korea said an agreement with the United States to scrap a weight limit on its warheads would help it respond to the North Korea threat after Pyongyang conducted its sixth and largest nuclear test two days ago. Not sure what Putin is up to.  Is North Korea feeling insecure? It is North Korea that is boiling the pot.

September set to be a huge month and likely increase volatility in US financial markets. Congress has the debt ceiling to bounce around, with posturing running rampant. In the end, the debt ceiling will be increased, but as the calendar clicks down, there will be news and days where fear of a debt default will loom over markets. The ECB meeting this month a very pivotal meeting; Mario Draghi at Jackson Hole a week ago commenting the bank will discuss potential changes to its QEs and low base interest rate. Inflation keeping the ECB nervous about pulling bank.  Here, the Fed wants to increase rates later this year (December) and in two weeks, to begin reducing its $4.5 trillion balance sheet. Both major banks face the lack of inflation as a hurdle to doing what both want to do. Then the geopolitical concerns will not go away and may even get more serious.

Tax cuts? I still believe it highly questionable there will be any major tax changes this year. Republicans cannot get on the same page, and Democrats do not want to get on any page.

Given all that lies ahead this month for markets it may finally trigger that elusive correction in equity markets that even the bulls think is long overdue. But it is North Korea, once again, dominating the markets and pushing mortgage rates lower. I expect mortgage rate volatility to be high today and for the rest of the week.