Mortgage Rates & Mortgage Market Info 05/08/2014

The bond markets including the mortgage bond markets or mortgage backed securities market is casting doubt on the economic reocery. Typically in a recovery you have rising interest rates which lead to higher mortgage rates, but that has not been the case as of late. Throw in a limited “hot” war in the Ukraine and you have some “flight to quality’ involved as well.

Overall interest rates continue to be range-bound. Lots of people don’t mind the lack of volatility, but LOs notice that mortgage rates have been improving – yesterday agency MBS prices improved over .250 in price. (Whether or not that was passed onto rate sheets remains to be seen.) Yet the 10-yr T-note was virtually unchanged. We’re really seeing the supply & demand dynamics play out with plenty of demand for MBS, and supply dropping. Deutsche Bank MBS analysts noted that as a result of the weak production, the Fed may be able to exit QE without putting too much pressure on MBS spreads (prices relative to Treasury securities).

The Fed Chair Yellen, in her written testimony today before the Joint Economic Committee, suggested the longer term outlook may not be as worrisome as has been feared despite the Fed’s tapering. Although she didn’t say anything surprising, she noted that recent indicators pointed to a rebound in the economy from a weak first quarter that was adversely impacted by weather. Yellen did not give any clarity on what the Fed means by a “considerable time” when referring to how long rates will remain near zero after QE purchases end, or about when reinvestment of paydowns would stop and when the Fed’s portfolio would start to normalize.

Here we are on Thursday already. Besides a spate of government financial officials speaking, and a $16 billion 30-year bond auction, the only economic news is Jobless Claims, expected to drop slightly. For a gauge of rates, the 10-year T-note closed Wednesday at 2.59% and is sitting at 2.62%, and agency MBS are off slightly. This could lead to higher mortgage rates leading into the weekend.

The question remains was it really “the weather” that slowed the economy or is it a deeper problem.


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