Mortgage Rate Update July 18, 2013

Mortgage rates have improved modestly this week as the Fed continues to calm the financial market’s nerves on the rise in interest rates.

In testimony to Congress yesterday Fed Chairman Ben Bernanke stated that the Fed may leave short-term interest rates low even after the unemployment rate improves to 6.5% or below if inflationary pressure remains low.  It’s the Fed’s latest effort to calm the markets following the sharpest increase in long-term interest rates in over 50 years.  Will it work?

Much like the way prices for financial assets cycle up and down the sentiment in the marketplace also cycles.  We are currently at a point where many investors have pulled back on their fear that the Fed will pull the plug on accommodative monetary policy in the near-term.  As a result mortgage rates have improved by .125%-.375% in the past couple weeks.

07-18 10yr yield

The fundamentals have not changed though.  The economy continues to show signs of improvement and we still believe the Fed will announce their plan to unwind quantitative easing in the next few months (most likely at September 18th meeting).

This morning weekly jobless claims were reported sharply lower and an index of manufacturing activity in the Philadelphia region showed stronger than expected results.  Good news for the economy is often bad news for mortgage rates.

From a technical standpoint mortgage-backed bonds appear vulnerable so I am going to remain in a locking position.

Current Outlook: locking bias