Mortgage Rates Rally as Stocks Sell

As I pointed out yesterday, when economic data is light the stock market tends to have a larger impact on the direction of mortgage rates. With no data on the economic calendar, the day began with stocks opening lower and the bond market opening higher. As the day progressed, stocks continued to move lower which allowed investor money to continue to flow into the fixed income sector. As money flowed into fixed income securities, MBS prices moved higher allowing all lenders to reprice for the better improving rates further.

Like yesterday, we have another slow day of data. At 1pm, the Department of Treasury will announce the results of today’s auction of $21billion of 10 year notes. Historically, the 10 year note auction carries the most impact on mortgage rates. If demand for our nation’s debt remains strong, mortgage rates should be able to hold at current levels. If demand is weak, mortgage rates will come under pressure later today.

Possibly of higher impact today will be the release of the Beige Book. This report is published eight times a year and is used at the FOMC meetings where our nation’s monetary policy is set. The market will be reading the Beige Book in search of any signs of economic growth. If it hints at an improving economy, market participants will want to sell their low yielding fixed income investments in favor of potentially higher yielding stocks. The last two times this report was released, MBS did close higher on the day as the data didn’t portray a heating up economy.

Lender rate sheets are improved over yesterday morning but slightly worse than the repriced rate sheets of yesterday afternoon. The par 30 year conventional rate mortgage remains in the 4.25% to 4.50% range with a few more lenders offering 4.125%. If you are seeking a 15 year term, you should expect a par interest rate in the 3.75% to 4.00% range. To secure a par interest rate, you must be willing to pay all the closing costs associated with your loan including one point loan origination/discount/broker fee.

I continue to favor and advise all clients closing in the short term to be locking. Longer term closings should also consider locking as MBS are very near all time price highs… lock the highs, float the lows. If you wish to gamble, keep an eye on the stock market. If stocks move higher, MBS will suffer and rates will be pressured higher.