Tuesday, June 7, 2016 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
Mortgage rates were steady today with very little movement from the opening bell. Markets (bonds and stocks) still digesting the meaning of the extremely weak and shocking May jobs gains, yesterday Janet Yellen made a valiant attempt to remove any thoughts the Fed is overly concerned with one month of hardly any new jobs, saying the Fed is still on a path to increase the FF rate, the timing; data dependent that Yellen has repeated numerous times since the beginning of the year.
May consumer confidence index much lower than expectations the lowest since last November and one of the lowest confidence indexes in two years. Mix in the potential exit of the UK from the EU that at the moment is a toss-up in recent polls and real fears about China's economy and banking system and Yellen has her nice hands tied behind her back. Q2 GDP currently expected to grow 2.5%. I do not expect economic growth will match markets and Fed expectations.
Treasury sold $34B of 3yr notes this afternoon - it was a modest auction matching the strong demand two weeks ago for the 2 and 5. The 3yr note is in the middle and usually does not get as much interest the others do.
My concern presently is interest rates are stalled after the declines last Friday and the previous few days. Technicals at best neutral - not bullish or bearish near term. That said, some of us are very bullish for the period from now until year end. The current situation - no trending buying, nor any selling. Fundamentally US and Global investors want the safety of US treasuries on concerns that trouble may be on the horizon. The DJIA is headed to a new high on the DJIA on a foundation of sand but it is what it is - bond investors not so sure. Support recently based largely on the view the Fed is not going to move until later this year.
In summary, we are not at the lowest point that we saw a few weeks ago, but we are very close to it. When rates have been near these 3-year lows, we've only seen them dip lower briefly - and usually not by that much. That means locking is never a bad idea at current levels. Even so, risk-takers could also find justification to float based on the hope that European markets continue to pull US interest rates lower as the European Central Bank (ECB) begins a new bond-buying program tomorrow. As always, if you choose to float, set a limit as to how much rates would have to rise before you'd lock to avoid further losses.
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