Monday, May 16, 2016 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
Mortgage rates held surprisingly steady today, even though underlying bond markets were in noticeably weaker territory. As bonds weaken, rates normally move higher, but there's been a bit of a disconnect recently. In light of our discussion last week, perhaps it is not so surprising.
Pressure all day in the bond and mortgage markets driven by a nice increase in stock indexes that was led by the rise in crude that was triggered somewhat by Goldman Sachs coming out with a bullish forecast for higher oil prices. And round and round we go. Two weeks and no big changes in MBSs or the 10yr note rate.
What do large banks know? Today JPMorgan Chase lowered its expectations for year-end 10yr note yield, joining a parade of large institutions that have also lowered forecasts. From 2.15% to 1.90% by the end of the year citing lower US and global growth from previous forecasts. Lower growth forecasts and Europe and Asia adding more stimulus add to the change of heart.
Tomorrow has a number of key reports, will they matter to the equity and bond markets? Recently the stock market has moved contrary to weak or strong reports. The bellwether 10yr yield dropped to 1.72% and today it closed out at 1.75%. I have been stating to cautiously float, and I have not seen too much benefit from such. The 10 is frozen at 1.70% and until it breaks it or yields increase I do not know if we should continue to do such. It really depends on your risk tolerance.
In summary, bond markets backed off last week's gains today. The losses came despite some bond friendly data, which is somewhat disconcerting. We're still closer to the recent range's top than bottom, and I still have recommend locking early in the process for clients within 30 days of closing. Tomorrow has meaningful data, including CPI and Fed minutes are released Wednesday. It should be an eventful week, and if you decide to continue to float, you better keep an eye on markets.
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