Rate sheet influential benchmark interest rates are a few basis points higher as equities bounce back from oversold territory this morning. The bond market is off to a slow start
The 2.625% coupon bearing 10 year Treasury note is -0-04 at 99-30 yielding 2.63% (+1.4bps). 2.66% has served as strong overhead support for rising yields lately. After an aggressive rejection of that pivot last Thursday, 10s are consolidating for another attempt at it. A confirmed break of 2.66% would likely lead to a move back to 2.75%
In the big picture, 10s are right in the middle of the PANIC ZONE we called attention to in July. (between the blue lines)
The short-end of the yield curve appears to have hit bottom, leaving curve biases at the disposal of trading flows in the long-end. The 2s/10s chart below illustrates choppy price action in curve swaps. The 2s/10s curve is steeper this morning but has found support at 214bps. This level has been tested three times in the past week, support held each time. A steepening yield curve is usually not a good thing for mortgage rates.
READ MORE ABOUT THE SHAPE OF THE YIELD CURVE AND MBS
Besides pending Treasury auction supply and generally overbought status, benchmark yields are backing up a few bps because of a modest recovery in equities. The old stock lever is in play.
As you can see below, S&P futures have generally chopped around a 20-30 point range. READ MORE. S&P futures are currently priced near their session highs at 1078. I would expect this positive progress to fade once 1080 is hit though. (RED = RESISTANCE)
Although benchmark TSY yields are higher, swap spreads are tightening and rate sheet influential MBS coupons are trading in the green (short covering at the wides). The October delivery Fannie Mae 4.0 MBS coupon is +0-03 at 102-07 and the FNCL 4.5 is +0-03 at 103-31. Production MBS coupon yield spreads are tighter vs. the curve.
Trading volumes are low across the board.
From Mortgage Rate Watch: Mortgage Rates React to Data! Potentially Choppy Waters Ahead
Since mortgage rates have basically moved (lower) at will for the majority of the summer, I think we should stop and call attention to the times when mortgage rates actually react to economic data. Not because I feel the bond market is trying to tell us the economic environment is fundamentally worse or better (LONG TERM OUTLOOK), but because I think the bond market is telling us it is looking for some directional guidance (SHORT TERM OUTLOOK).
Plain and Simple: it's any ones guess what mortgage rates do on a day over day basis, investing outlooks are extremely non-committal and recent behavior seems to suggest the market is willing to take guidance from any source. BE ON THE WATCH FOR CHOPATILITY
BIAS: RATES HIGHER IN DAYS AHEAD
I haven't updated my loan pricing model today. I hear rebate is worse though. What say you?