Thursday, May 28, 2015 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
As I discussed this morning in my report, I did not expect to see much change in the bond and mortgage markets today - and it held true to form. The 10yr is ready to break to the downside taking rates lower but so far has run into resistance at 2.14% - 2.13%. The Q1 GDP report tomorrow will either turn the work bullish again or send rates higher and MBS prices lower on a third failure at 2.14% area on the 10yr. The recent estimate for Q1 is the economy contracted 0.8%, mostly weather but there were other factors like inventory builds that weakened the economy. Give there is almost a 100% consensus the economy contracted in Q1, anything less than -0.8% will likely bother the bond and mortgage markets.
Fedsters were out today continuing to twist minds with differing opinions. Treasury sold $29B of 7yr notes this afternoon, as it was a very strong auction with solid bidding. Markets reacted positively but didn't change much with the key Q1 GDP report in the morning.
The G7 finance ministers are meeting in Germany and Reuters is reporting on the talks. A source from the German delegation said that Nobel Prize-winning economist Robert Shiller warned that an asset bubble had already formed in equity markets and it was necessary to hike interest rates now. Yesterday the Shanghai stock market got hit hard, the key index declined 6.5% the equivalent of a DJIA decline of 1000 points.
In summary, mortgage bonds have been having a difficult time breaking convincingly the range it hit today for the third time this month. If they are not able to move to the path of least resistance, rates to move up. At the moment we are in wait and see mode. If you are happy with your rate go ahead and lock as what has been my suggestion now for nearly 10 days. if you can stomach to wait a few more days before making that decision, you may need to become an analyst and let me know your secret as I do not feel ay reward is worth the risk at this time.
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