China and US Relations Worsen

Yesterday’s prediction of a stall for mortgage bonds at current levels was well timed, with bond prices falling in early morning trading. If you locked in your rate yesterday, congratulations, you locked in at the best pricing in the mortgage market that we have seen since late 2017. Today’s move lower in the price of mortgage bonds is directly in opposition of the stock market, which is now recovering some of its losses after facing the worst day of 2019 yesterday for the US stock market. With President Trump labeling China as a “currency manipulator”, it seems that the relationship between the US and China is not improving. Until the two powerhouses can come to a trade agreement, expect more of the same, which means volatility.

Many people looking to lock in a low mortgage interest rate are wondering why mortgage rates aren’t falling at the same pace as the 10-Year Treasury Note yield. I’ve had so many questions surrounding this in the past few days that I will take a minute to explain. First thing to know is that mortgage bonds and the 10 YTN will not trade in lockstep. Although they will generally move in the same direction, the adjustments will never be equal. Since the Fed is still reinvesting proceeds from their balance sheet into the 10 YTN market, this rate is being driven lower relative to mortgage bonds. If you remember, the Fed stopped purchasing mortgage bonds many months ago. They continue, however, to purchase 10 Year Treasury Notes. Therefore, the 10 Year market is seeing the additional benefit of the Fed. That is one primary reason mortgage pricing hasn’t improved as much as the Treasury market.

With bond prices beneath a duel layer of overhead resistance, we will maintain a locking bias.