Mortgage Rates



Early this morning the bond and mortgage markets were under pressure with stock indexes trading higher on anticipation of a better open at 9:30. Mortgage prices started down 7/32 (.22 bp) but by 9:00 climbed back to unchanged frm Friday, the 10 yr note at 9:00 -5/32 frm -13/32 at 8:00 am, the yield at 2.25% +2 bp. Bernanke spoke this morning saying the drop in the unemployment rate may reflect a reversal of the large layoffs that occurred during late 2008 and over 2009. “To the extent that this reversal has been completed, further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies,” he said. He also reiterated that while the economy is improving, he still sees structural weakness that will require the Feds to keep the FF rate at this level for a lot longer. Last week there was some talk among traders that the Fed would not hold rates through the end of 2014 as the Fed had been saying, Bernanke didn’t put a time frame on his comments this morning but did counter the idea that inflation was heating up to the point that the fed would have to begin increasing rates.

At 9:30 the DJIA opened +97, NASDAQ +26, S&P 500 +11. The 10 yr note -3/32 at 2.24% +1 bp and MBS prices on 30 yr loans +3/32 (.09 bp).

The only data today; at 10:00 the NAR reported pending home sales for Feb (contracts signed but not yet closed). Forecasts were for sales to have increased +0.5%, as reported sales fell 0.5%. There was no reaction to the report, although as the day moves on the stock indexes are improving and mortgage prices slipping back a little; mortgage prices -4/32 (.12 bp) at 10:10, at 9:30 +3/32 (.09 bp).



Comments from Bernanke this morning that he will keep FF rates low and has no thoughts of any increases as far out as he can see has added support to both stocks and bonds. Concerns still persist in his mind that the economy remains fragile. His remarks stabilized the bond market which was weak. Even with the stock indexes rallying hard so far, the bond and mortgage markets are doing well considering that when the stock market does better the bond and mortgage markets suffer. Mortgage prices actually holding a minor improvement at 9:30, based on Bernanke saying the economic recovery is essentially improving more than what the Fed was thinking two months ago. Pressure on the rate markets is less than what would be the norm with the key indexes doing better because of his statement that the Fed would keep rates low with no increases in sight. It is reducing the link between equity markets and the bond markets; at least so far today.

Technically, 2.25% on the 10 yr note could well be a resistance level but at this time we need more trading to be sure. Still suggest locking on rallies as we don’t believe rates will decline much----unless---Europe comes back to the edge of default and at the point that doesn’t seem likely, or the US stock market declines and too doesn’t show much promise even with many calling for a correction.