Mortgage Rates Trying to Push Lower

Mortgage rates are trying to move lower.  Over the last few days I have commented that to push interest rates lower than these lows the stars had to stay in line, mostly fear factors and weakening stock indexes. At these low rates, it does not take much to shake bullish outlooks for rates. This afternoon is a prime example. Around noon, the rate markets were improving with the 10yr pushing 2.06% and MBSs on the positive side. 

Then we heard from Pres. Trump as he met with congressional leaders this morning.  This afternoon he sided with Democrats on a plan to extend the debt limit set to be reached at the end of this month by three months and include funding for Harvey. Republicans though said it was unworkable and “ridiculous”. Republicans cited many reasons - mostly market reactions. Still an unsettled issue as it always is on debt ceiling increases that occur every other year. Senate Republican leaders had planned to use the measure to suspend the debt ceiling past the November 2018 congressional elections, but Trump’s move upended their strategy. Also, Trump commented that military force against North Korea is not his first option. It was never believed that the first option would be to attack North Korea but just his remark and the debt ceiling situation was enough to turn markets. Here we saw Trump and his Republicans moving farther apart - he got pissed when there was no health care bill.

The House did pass a $7.4B federal disaster-relief fund, just days before it was to run out of funds, and $450 million in funding for the Small Business Administration. Additional FEMA funding is to be provided later, according to House aides.

Are there any Fed governors left? Today Stanley Fischer resigned effective next month, eight months before his term was to expire. That leaves four vacancies on the Board of Governors and the possibility Janet Yellen may not be re-appointed next Feb. The Fed outlook will be the center of market speculation along with the divisions within the Fed over what to do about increasing rates and winding down the balance sheet.  

Hurricane Irma is moving toward south Florida – as it is said to be the strongest hurricanes ever. I personally went through Hugo in 1989 and Andrew in 1992, and those were huge – but this is supposed to be a heck of a lot bigger.  Weather forecasters still not certain abut when or if it will hit and how much damage it will cause. Airlines beginning to take their planes away and cancelling flights into the area. Officials in Florida called for evacuations ahead of the storm’s expected landfall. Florida Governor Rick Scott said Irma could be more devastating than Hurricane Andrew, a Category 5 storm that struck the state in 1992 and still ranks as one of the costliest ever in the United States. Another disaster like Harvey would be a headwind for US equity markets and possibly push the FOMC to a more dovish stance.

In summary, news of a probable debt ceiling extension spooked bond markets today, and morning gains vanished by early PM.  Too early to say if this is a momentary pause in the march to lower rates or the market's bottom, but with pricing as good as it has been since November, locking here seems like the safe play for those closing within 30 days.