Tuesday, March 18, 2014 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
Mortgage rates were unchanged today, putting an end to 2 days spent moving higher as the threat of violence diminished in Ukraine. The most prevalently quoted conforming 30yr Fixed for the best-qualified borrowers remains at 4.5% for some lenders, though at least as many are still offering 4.375%.
We expected today to be quiet with the FOMC meeting tomorrow, but it was far from such. The stock market rallied and although interest rates were quiet MBS prices did improve from morning levels. The stock market bolstered on February housing starts and permits better than thought and interest rates held well on some concerns over China and the first signs that weapons were used in Crimea as a soldier was killed when unidentified masked gunmen stormed a military installation in the plebiscite. U.S. and European stocks climbed after Putin's comments this morning that he is not interested in Ukraine. Treasury yields fell and the yen strengthened on demand for haven assets amid speculation the situation remains volatile. Sanctions are almost a surety now from Europe and the US, but what was not as obvious is what the sanctions will be.
The FOMC meeting began this morning with the policy statement that concludes the meeting will come tomorrow afternoon. It is widely believed the Fed will taper another $10B and will restate that the Fed plans on keeping interest rates at zero to -0.25% well past when the unemployment rate drops below the previous target of 6.5% - but as long as the inflation rate is below 2.0%. In her testimony at the Senate a couple of weeks ago, Yellen signaled she is not convinced that the employment sector is as strong as the unemployment rate implies. Finally a Fed official that admitted the unemployment rate is flawed and not a good measurement on jobs growth. Likely her press conference after the policy statement she will get a number of questions about her thinking.
The interest rate market continues to hold well - not declining but equally not increasing. The range of trading in Mortgage Backed Securities (MBS) and treasuries is well-defined and will not likely break out of the range as long as Russia is in play. Equity markets are momentarily ignoring the possible economic impact on the US and Europe and were the key to today's and yesterday's rally. Investors are likely to continue to hold some treasuries as insurance against further surprises from Russia's Putin.
In summary, just when it seems things are settling down in Ukraine, we get headlines of gunfire. The issues there are definitely helping to keep rates in the recent range. Rates opened this morning slightly worse, but as the day progressed and headlines hit they have started to improve. Tomorrow, we get news from the FOMC meeting which could definitely move the markets but that will not hit til 2pm. I favor floating overnight but be ready to lock tomorrow if the FOMC statement impacts rates negatively.
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