Rates Rally Runs Out of Steam

Volatility remains in the interest rates markets. Much like Tuesday, rates rallied in the morning just to come under pressure late in the day to close at basically unchanged levels. Tame inflation data helped mortgage backed securities rally in the morning which allowed lenders to issue better rate sheets when compared to the prior day. MBS extended their price gains into the early afternoon which pushed some lenders to reprice for the better; however, MBS were unable to hold onto those gains going into close which forced those same lenders to reprice for the worse bringing rates to unchanged on the day.

Today we have three economic data releases that can have an impact on the near term direction of mortgage rates. First out was the weekly Jobless Claims. From the Department of Labor, this report tracks the number of Americans that filed for first time unemployment benefits in the prior week. Since our economy is driven by consumer spending, higher jobless claims indicates consumers will have less money to spend which is bad for corporate profits and stocks but generally helpful in keeping interest rates low. Recent reports have shown a steady decline in jobless claims which indicates a improving jobs sector.

This report gives us three measures of unemployment claims:

- Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits in the previous week
- Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job
- Extended and Emergency Benefits: totals the number of Americans who have exhausted their traditional benefits and are now collecting extended and emergency benefits which can last as long as 99 weeks

Here are the results:

- Initial Jobless Claims: +2,000 to 439,000 vs estimates of 440,000. Prior week revised worse to show an additional 2,000 claims. The 4 week moving average has declined by 15,000 since last month signaling an improving jobs sector.
- Continued Claims: -48,000 to 4.295million vs estimates of 4.30million. The 4 week average is down 133,000 from a month ago.
- Extended and Emergency Benefits: +121,000 to 4.93million

Since the numbers came in very close to expectations, this has had minimal effect on market sentiment.

Next came Leading Indicators for September. This is a composite index of 10 economic data points that are believed to be forward looking indicators of economic activity. If the month over month change is positive, it indicates the economy will be improving in the months ahead. Most of the components of this report have already been released so the market generally has a limited reaction to the news. Today’s data indicated Leading Indicators rose for the fourth straight month to 0.5%, matching expectations.

Our final release today was the Philadelphia Fed Survey. This survey gives market participants a read on the strength of business conditions around the Philadelphia region. Readings above 0 indicate conditions are improving while readings below 0 indicate business activity is contracting. Last month’s survey showed the first positive reading in two months coming in at 1.0, matching expectations. Today’s report blew away expectations showing a large rebound in business conditions in the Philly region. Economists had expected a small improvement to 5.6, but the survey registered a reading of 22.5, the highest reading since December 2009.

Following the release of this and the LEI report, stocks have soared higher pulling money away from treasuries and MBS.

Due to early morning weakness in the bond market, lender rate sheets are slightly worse this morning. The par 30 year conventional rate mortgage remains in the 4.25% to 4.50% range for well qualified consumers. To be considered well qualified you must have a FICO credit score of 740 or higher and a loan to value at 80% or less. Lower FICO scores or higher loan to values should consider a FHA/VA loan which offers similar rates with higher costs. The par 15 year conventional rate mortgage is in the 3.75% to 4.00% range.

Unless you are in a position that you must lock due to a set close date, I feel you should continue to float. The ride will continue to be bumpy but I feel you will be able to lock at better terms in the not too distant future.