Mortgage Rates Movement Tide to Participation in Traders

Mortgage rates moved slightly higher today – which was to be anticipated as usually the case during major holiday weeks.  Here we are at Thanksgiving, and there is generally a certain level of participation that traders and mortgage lenders can count on - participation wanes and the remaining players tend to behave a bit more conservatively.  With fewer players in the game, each trader has a bigger say in the direction rates will move.  If there are more bonds being sold than bought, regardless of the motivation, rates will move higher.  This was the case today.  Things could just as easily go the opposite way tomorrow, but that is not the sort of thing to plan on.  Considering that banks will be less willing to offer lower rates if bond markets improve this week, both risks and rewards are muted when it comes to floating vs locking. Overall, I still am not counting on any major moves as well as I do not believe there will be any significant changes in markets this week.

The tax cuts still the major interest in US and global markets - no Senate vote will happen this week, as Congress is already booking flights out for Thanksgiving.

Janet Yellen tendered her resignation today. Her resignation a normal move ahead of her term expiration in February and effective upon her term expiration. Media reporting it as they should and given Jerome Powell is Trump’s decision it is not market-moving news. “As I prepare to leave the Board, I am gratified that the financial system is much stronger than a decade ago, better able to withstand future bouts of instability and continue supporting the economic aspirations of American families and businesses.” …..“I am confident that my successor as chair, Jerome Powell, is deeply committed to that mission and I will do my utmost to ensure a smooth transition.” Theoretically Yellen could stay on the Board of the Fed until January 2024, but that is unlikely.  

Charlie Manson died yesterday in prison. According to prison officials he died of natural causes.  Czech tennis player Jana Novotna, who won the 1998 Wimbledon championship after falling short in two previous finals, has died at the age of 49 after a long battle with cancer. As you can tell, not much news and nothing that moved markets.

There is an issue that may be brewing in Germany - Angela Merkel failed to form a coalition government after the elections in September. Question now is will she manage to survive as Chancellor. Too early for any assumptions but it is the first time in years it has occurred, and it is causing Germany and Europe a new round of uncertainty. Tomorrow we get October existing new home sales expected.

In summary, it is usually a tough call to lock on a holiday shortened week.  I do not see much upside potential this week.  We are in the lower half of the recent range and it is a short week.  Volume tends to dry up the closer you get to the holiday making the market more susceptible to larger swings in price/yield.  Short term locking looks good.  Longer term I see more bouncing between 2.2 and 2.4 until tax reform takes center stage.  When it does, all bets are off.