Thursday, March 26, 2015 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
Mortgage rates rose rapidly today, almost completely erasing the improvement following last week's Fed Announcement. In this world of interest rates a few days can be a life time. Yesterday and again today most of the driving news is coming from the Mid-East - Yemen under assault from rebels, Shiites and Sunnis at war as civil wars throughout the region are heating up, though so far, markets are just watching for the most part. Eventually the Mid-East, if the situation continues to deteriorate as we expect, the world will have to take notice. The market concern presently is on crude oil supplies, Saudis do not want to lose access to the sea ports the country uses - the impact is crude is moving higher - one of the prime causes for the lower interest rates recently.
Also hampering the bond market in the last few sessions is the dollar is weakening after weeks of gaining against the euro-currency and yen. The stronger dollar drove investors into the US, now that the dollar has lost its momentum traders are want to keep buying bonds, the investment not quite as good as it was just one week ago. Foreign investors are not so bullish today on US debt even though treasury yields are much higher than most all rime sovereign debt.
If those are not enough, the demand for US treasuries on yesterday's 5yr note and today's 7yr note was quite weak compared to recent demand. MBS prices dropped and the yield on the 10yr jumped at just after Noon when the results hit the wires.
I have consistently warned about increased market volatility since the FOMC meeting last week. What has occurred in the bond and mortgage markets as a result of changes in crude oil prices and troubles in Yemen that threaten Saudi oil output were not on the table as recently as Monday.
Here is where is seen from a technical perspective - the 10yr at 2.00% is testing its 20 and 40 day averages and all of our momentum oscillators have lost momentum and are now at neutral levels. Putting a little perspective on current markets - interest rates continue historically low, and additional declines in rates will require somewhat of a perfect storm at these levels.
In summary, today's second poorly received auction has created another post auction sell off and bonds have now violated the uptrend they have been in. This does not necessarily mean rates will continue to increase but betting on lower rates in the short term is no longer safe. If your stomach is turning because you are now being quoted rates higher than available at the beginning of the week, go ahead and lock and end the pain. If you have the stomach to stay in it and more importantly weeks before closing waiting things out in case this is a profit taking breather in a longer term move lower in rates may payoff.
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