Thursday, December 10, 2015 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
Mortgage rates moved moderately higher today, bringing them to the worst levels since last week. Selling occurred in treasuries and mortgage markets today. Not a big shock since the bellwether 10yr note tried again to move below 2.20%, the level that has curtailed even the smallest improvements in MBS prices. The reason today, the stock market indexes increased - not really a good reason but with the FOMC meeting next week and tomorrow being Friday, the combination of technical resistance and nothing else to get any significant attention, markets just meandering this week. Tomorrow though markets will see the last of significant news before the meeting next week. November retail sales the main focus but also November PPI, October business inventories and the U. of Michigan consumer sentiment index. Retail is the centerfold.
Treasury completed this week's borrowing selling $13B of 30yr bonds re-opening the current on-the-run bond. Foreign buyers once again were out in force buying, as they did yesterday with the 10yr auction.
Technicals still neutral and I do not expect any major price gains now until the FOMC policy statement at the earliest, and that is a huge speculative question currently. US financial markets very uncertain about the reaction next week when the Fed is widely expected to increase the FF rate by 0.25%. The policy statement is the determinant, how the FOMC implies the future for more increases will be the key for the long end of the curve, more so than the rate increase itself. The Fed will also release its quarterly estimates for the future; the Fed loves to tell us inflation will increase soon, say it long enough and soon will be correct. In the meantime, inflation fears are wasted energy, no pun. Until energy prices reverse inflation is not going to engage as all central bankers are praying for.
In summary, rates were largely unchanged today, as both treasury and MBS prices hovered in recent ranges. The Fed's looming overnight rate interest hike is priced into markets, and I see little motivation for rates to change dramatically up/down, given oil's continued bear market. It is tough for anyone to be concerned about inflation (which is bonds' archenemy) when oil is trading at multi-year lows. The lock/float decision in times like this boils down to "do we wait and hope your lender credit rises slightly (knowing full well it might drop instead), or do we lock and concentrate on packing?" I'm 50/50 lock/float now for new files, but only with the caveat that huge gains are highly unlikely.
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