Wednesday, December 9, 2015 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
Mortgage rates held steady for a second straight day, but market volatility continued today - with real time quote reception you may not have noticed. The stock market opened better this morning running up 199 points, the 10yr note yield increased to 2.26% and MBSs were down 17BPS, but by early this afternoon the stock market rolled over, the 10yr note improved to the pivot resistance at 2.20% and MBS prices up 6BPS. The financial markets are hardly moving when looked at in wider perspective, the interest rate markets have not had a meaningful trend since early November. Looks like the equity markets are rife with leveraged trades using margin - with the interday and intraday volatility many trades are being hit with margin calls. Many reasons for the volatility but the prime one if next week's FOMC meeting and the anticipated rate increase of 0.25% for FFs.
There is clearly uncertainty about what will happen when the Fed moves while the ECB continues with its stimulus. The dollar a week ago was increasing against the euro and yen the dollar index traded at a multi-year high. Since then the dollar has weakened. Crude oil this morning slightly firmer until 9:30 when the inventory levels were reported lower than oil traders were expecting. Commodity prices declined with crude this afternoon. The ECB set off a firestorm last Thursday announcing a less aggressive stimulus than most thought would be the case. With the background of uncertainty interest rates spiked higher, it lasted two sessions before the bond and MBS markets recovered and now back to levels last Wednesday.
This afternoon Treasury sold $21B of 10 yr notes re-opening the Nov issue. The auction met with good indirect demand (foreign investors). Generally, the auction was in line with previous 10yr auctions. So far no significant data this week expect today's October inventories that were less than expected, and September inventory levels revised downward. Businesses appear fearful of allowing inventory levels to increase. Inventories of durable goods also declined in October.
Tomorrow just weekly claims and November import and export prices, along with the Treasury will sell $13B of 30yr bonds re-opening the bond issued in November.
In summary, the technical work remains neutral; not bullish or bearish, that has been the case now for over a week. The volatility in the marketplace has everyone right now guessing which way will mortgage rates go after the announcement next week. The rate may be built into the market, but the interest rates need to rise - but will they?
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