Mortgage Mike’s Daily Rate Commentary

Mortgage bonds continue to improve in early morning trading as the stock market takes a breather from the rally that has sustained for many weeks. This seems to me to be a temporary change that will provide a short-term opportunity in interest rate pricing. Since the news driving the stock market is heavily based on fears of a global economic slowdown, this is driving money into a bond market that appears to be in an overbought position. For that reason, I anticipate we will quickly find a new ceiling and bond prices will fall.


The good news is that bond prices are now at high prices not seen since the great price fall in late 2017. This means we are in waters not chartered in more than a year. This also bow provides the opportunity for prices to continue to climb higher in the weeks and months to come.


Once again, I’m going to reiterate my belief in a no-cost loan strategy. This will allow you to refinance again in 6 months if rates are even lower without losing anything. The strategy is to take steps along the path of a decreasing interest rate environment. There is no benefit in waiting.  Get started now.


We will take a more conservative approach and suggest a locking bias.

Yesterday’s Fed announcement shows just how wrong the Fed’s December 2018 assessment was. Before December, the Fed was planning on raising short term interest rates two times in 2019. However, following the December meeting, they not only raised rates at that meeting by ¼%, they also increased the expected times rates would be increased in 2019 up to three. This move sent shocks through the market, and mortgage interest rates experienced upward pressure as investors started to price in a third rate hike in 2019. Fast forward to March 20th, 2019. Just yesterday, the Fed announced it is not anticipating any rate hikes in 2019. This crazy reversal is a vindication of what we have been saying all along and opens the path for mortgage interest rates to see better days going forward.


Yesterday’s news is not only good for mortgage interest rates, it is also a positive sign for the stock market. In an environment of increasing interest rates, that eats into corporate profits, which causes a headwind for stock prices. However, now corporations can predict more stability in their income statements and in knowing the cost to borrow capital for growth purposes. As a result, stocks are up significantly today, continuing their path towards all time high levels.


At this moment, there is no need to rush to lock. However, if you choose to float, do so carefully, as sentiment can reverse quickly.

Stocks continue to climb higher and are now not too far away from reaching all time high levels. The climb higher in stocks has been strong and could get a huge burst of strength if the Federal Reserve decides to increase their purchases of mortgage backed securities and/or 10 Year Treasury Notes. If the Fed does make this move, it would be good for both the stock and bond markets, as it would likely drive interest rates lower to push private money out of lower paying investments into the riskier assets of the stock market. This was the premise behind Quantitative Easing, which this would essentially be mimicking.


The Federal Reserve will begin their two-day meeting today, with the policy and rate announcement set for tomorrow at noon MST. Since there is no chance of a rate hike, the markets will be closely looking for any changes to the Fed’s balance sheet. As mentioned above, if the Fed decides to maintain more investments on its balance sheet, that would have a positive result for both the stock and bond markets. Although I believe this will eventually happen, it may be too soon for the Fed to make such a move now. With the stock market remaining strong, they may decide to hold off and maintain the current path. We will have to wait and see what happens.


Given the strength of the ceiling over mortgage bonds, we will maintain a locking bias.

Mortgage bonds are slightly positive this morning, as the bond market weighs which direction to go from here. From a technical viewpoint, bonds appear to be overbought. This means that we will likely see a sell-off occur in the coming days. Since bond prices are now near the top of a trading range, that would generally be the next move regardless. In the meantime, it makes sense to take advantage of the pricing now available. With no cost mortgage rates on a 30-year fixed currently at an APR as low as 4.375%, this is a great opportunity for those who have a rate above this level. Even if your current rate is only slightly higher, when there are no fees to close a loan, there is no time needed to breakeven. It’s a win / win situation.


Next week we will have another Federal Reserve meeting. Since there is no longer a concern as to the Fed deciding to raise interest rates, the markets will be listening intently to see if there will be any changes to the Fed’s balance sheet reduction plan. At some point, I anticipate the Fed will increase the level of 10 Year Treasury Notes and mortgage bonds they purchase. This is a form of Quantitative Easing, and generally would have the impact of reducing interest rates. Therefore, doing a no cost loan now and another no cost loan in the future could be the prudent strategy for you.


Given that bonds appear to be in an overbought position, we will maintain a locking bias.

Mortgage bonds are trading near flat in early market trading. The good news is that bond prices remain above critical floors of support that could eventually lead to more good things to come for mortgage interest rates.


Stock prices are swinging from up to down as news stirs regarding President Trump and China’s President Xi delaying their meeting until April or later. It seems there is more work to be accomplished before a trade agreement can become a reality between the two powerhouse countries. With so much riding on the outcome of the trade agreement, stock investors will likely continue to see small bits of good news between now and the time an agreement is made. Since trade challenges have been heavily responsible for significant ups and downs in the stock market, we can continue to anticipate more of the same going forward.


The pressure is mounting for the Federal Reserve to take steps to continue to soften its economic position in order to help avoid a global slowdown. With interest rates finally on hold, the next step would be for the Fed to continue purchasing mortgage bonds and 10 Year Treasury notes. This would help place downward pressure on mortgage interest rates, which is something that very few professionals thought would happen. In fact, I continue to see real estate agents preach about rising interest rates and increasing home values.  One or both must slow. The increase pace in both markets is not sustainable.


With bond prices near the top of a trading channel, we will maintain a locking bias.

The CPI (Consumer Price index) report, which measures the average change paid by consumers for goods and services, came in at estimates. Core CPI, which removes food and energy due to volatility, came in just under expectations at 2.1 versus 2.2 estimate. CPI is one of the prime measurements of inflation, so the low figure is bond friendly.


Bonds and most stock indexes are in the green, with the exception being the Dow in the red from another down day in Boeing. Mortgage bonds and the 10-year treasury are both sitting on the edge of new territory, and while it is tempting to hope for the breakout, the range has held firmly since the first of the year. Pricing is at its low again, so we will maintain a locking bias.

Today’s Retail Sales number for January beat expectations, but the previous months negative figure was revised even lower to -1.6 from -1.2. Markets are starting the week with stocks moving higher and mortgage bonds under some pressure. Stocks remain positive for now, even with Boeing shares down over 6% as a result of the Ethiopian jet crash. Tomorrow’s economic schedule includes CPI numbers for February, and while there are no indicators that inflation is a threat currently, any inflationary surprise is pressure to mortgage bonds leading to higher rates.


Mortgage bonds are slightly in the red, but they are holding near the top of their trading channel. As much as we want to see them break out for lower rates, they have a history of moving back the other way. Until we see a convincing break above this range resulting in a move lower in rates, we will maintain our locking bias.

The NFP for February surprised us, coming in at only 20,000 new jobs versus estimates of 180,000. With such a significant miss, the markets would typically whipsaw and spike or tank immediately, but stocks have only gradually drifted lower with the Dow down over 150 points and mortgage bonds just 9 basis points higher. 10-year treasury yields moved lower initially but came back up to their technical level that has been intact for months. Mortgage rates generally correlate with the 10-year treasury so a convincing break below their current level would likely result in lower mortgage interest rates.


Mortgage bonds and the 10 year are both sitting at the edge of their respective ranges. While we would love to see a breakout for lower rates, this range has held intact since the beginning of the year. Each time prices hit these levels, they have bounced back and headed the other way. Until we see a decisive breakout, we will maintain a locking bias.

The ADP Employment report came in very close to estimates at 183k versus the forecasted 189k. However, the more notable element was the revision to the previous months report raising the figure to 300k from the reported 213k. This report would support the argument for a strong economy as well as an anticipated strong NFP report this Friday, but stocks are drifting lower and bonds are holding their ground for now. Tomorrow does not have any market moving reports, so it is likely the markets will continue to tread water in their respective ranges.


Friday’s NFP jobs report is setting up to be the potential market mover. The initial reactions can result in drastic swings back and forth, so we will maintain our locking bias.

Last week had economic reports that were bond friendly, but bonds didn’t respond by moving up to push rates down. This week, the ISM N-MFG PMI (Institute for Supply Management non-manufacturing report on Business) came in higher than expectations at 59.7 versus estimates of 57.3. This would normally push bonds lower resulting in higher rates, but they aren’t selling off. This ISM N-MFG is widely considered the 2nd most important report behind this Friday’s jobs report.


Stocks are slightly positive and have remained within a tight range for the last 10 trading sessions. Specifically, the S&P 500 is hitting a ceiling at the 2820 range, which happens to be the same area last seen in October, November and December before the big sell off in December. It is likely that markets will hover in their respective ranges until investors receive a strong enough reason to break out, whether it be up or down. It could certainly be this Friday’s jobs report, or surprising political news. We will maintain our locking bias position.