Mortgage Rates Appreciably Lower After Geopolitical Headlines

AppId is over the quota
AppId is over the quota

Mortgage rates moved more decisively lower today, though not for any stable or happy reasons.  Such is often the case with interest rates.  As economic conditions worsen or as terrible events around the world fuel demand for bonds, prices of those bonds rise, causing rates to drop.  This was the case today for US Treasuries as geopolitical events rocked markets.  Mortgage-backed-securities (the bonds most directly responsible for mortgage rates) tend to move in the same direction as Treasuries.  Today was no different, but with geopolitical headlines moving markets, Treasuries get more of the benefit because they're a more readily available "safe-haven" asset.

The events in question include the shooting down of a Malaysian airliner near the Ukraine/Russia border as well as the inception of an Israeli ground-based assault on Gaza.  There were other considerations in play today, but these were the biggest.  The net effect was strong and steady improvement in bond markets and several instances of mortgage lenders revising rate sheets lower during the day.  The gains leave 4.125% as the most prevalently-quoted conforming 30yr fixed rate for top tier scenarios.  The ability for rates to remain this low or move lower is limited only by the geopolitical strife to continue escalating.  Once it stagnates or improves, rates are likely to snap back higher.  Even then, we have yet to see a move outside the 2-month range.

Loan Originator Perspective

"The Malaysian Jet incident today created a bit of geopolitcal risk helping bonds and therefore mortgage rates improve today. On a technical basis we've moved nicely down to a floor in pricing but it appears we've been unable to break through this floor to prove this rally has more legs. Given that, I believe short term closings should stronglyconsider locking to reap the gains we've experienced. Folks with a longer term to closing can likely keep a floating with a cautious and attentive stance and a close connection to your loan officer." -Hugh W. Page, Sen. Mortgage Consultant, Capital Partners Mortgage

"FLOAT--Treasuries have moved towards 2014 lows, and Mortgages are trailing, slowly, behind. If treasuries simply hold these levels we'll see rates improve. As always, though, be ready to lock if momentum changes quickly." -Brent Borcherding, www.brentborcherding.com

"News of the Malaysian airliner being shot down over Ukraine has sparked a flight to safety trade where investors sell stocks in favor of bonds. The news helped push the benchmark 10 year note to the bottom of our recent range at 2.47 which has been very solid resistance. I have been saying the last few days to float the highs and lock the lows....however, we just received breaking news of a ground invasion of Gaza by Israel forces. This news has pushed the 10 year even lower. At this point, lenders will be very slow to pass along the improvements. Even though we are at the best levels in quite some time, I would recommend to float overnight to allow lenders additional time to pass along these improvements. " -Victor Burek, Open Mortgage

Today's Best-Execution Rates

30YR FIXED - 4.125
FHA/VA - 3.75%
15 YEAR FIXED -  3.375%
5 YEAR ARMS -  3.0-3.50% depending on the lender

Ongoing Lock/Float Considerations

The hallmark of 2014 so far has been a disconcertingly narrow range in rates.  Too many market participants bet on rates going higher in 2014, and markets have punished that imbalance with a paradoxical move lower. As of June, rates were officially lower year-over-year, but that's due to rates' path higher in 2013.  The current path in 2014 remains sideways.  European markets continue to play a nagging role in the background, generally helping rates in the US remain lower than they otherwise might be.  From a wider point of view, we're in limbo, waiting for the first significant move away from the narrow range.  A rally into late May stood a chance to act as this break, but rates have since returned to what were previously the lower limits of the 2014 range. As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.'  Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy.  It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).  Chief Operating Officer, Mortgage News Daily / MBS Live A former originator, Matthew began writing for Mortgage News Daily in 2007, covering a wide range of topics. Seeing a need in the marketplace, his focus increasingly shifted toward relating MBS and broader financial markets for loan originators. ... more

MBS Day Ahead: Basically Just Waiting on Geopolitical Risk; Dangerous Game for Bonds

AppId is over the quota
AppId is over the quota

Although economic data had some small role to play in yesterday's strong bond market rally, the day was really all about geopolitical risk.  If we've learned anything about geopolitical risk as a market mover, it's to not rely on it as a long term guidance giver. 

Even after the risk merely levels off, markets usually bounce back.  Maybe not today, maybe not tomorrow...  Maybe not even soon, but on the other hand, it could be soon!  Point being: don't take the newfound move of 10yr yields into the 2.4's for granted.

Heck, we can't even take the same low-rate pleasure in 2.4+ 10yr yields as we did in late may because MBS have been lagging Treasuries so much.  Thankfully though, that SHOULD put us in a better position going forward--one where MBS is more willing to keep pace with any additional rallies and less compelled to keep pace with Treasury weakness if we go the other direction.

If we do happen to turn a corner today or Monday, the implications are pretty depressing from a technical standpoint.  Such a bounce would not only end up contributing to a long term inflection range from 2.40 to 2.51, but it would also introduce new technical signals with longer term implications. 

One of these would be a "bearish divergence" in RSI.  RSI, or the "Relative Strength Index" is one of the most popular momentum indicators around.  When its line is moving up or down, momentum is increasing in the direction of the movement.  When the line hits either horizontal level at 30 or 70 (it's always 0-100), the security is overbought or oversold, which basically means it's ripe for a correction as soon as it crosses back over the horizontal line heading the other direction.

A bearish divergence occurs when momentum is telling a different story than the charted security--in this case, 10yr yields.  Note in the chart below that (IF we bounce higher in yield soon) that yields will have bounced at lower lows than those seen in late June, yet the RSI line will be bouncing at higher lows.  The conclusion is that underlying momentum doesn't support the the increasingly aggressive rally. 

Keep in mind, that's just one technical study.  It wouldn't necessarily doom rates to a an epic sell-off.  But it does serve as a reminder of the ephemeral nature of geopolitically-motivated rallies, and would be one more mark against the sustainability of current levels.

Whether or not things play out in this manner remains to be seen.  Markets are essentially reduced to headline watching today as the event calendar is light.  One thing to keep in mind is that geopolitical risk often undergoes significant change over the weekend, so it's less safe than normal to assume Monday's rates will be close enough to Friday's. 

That's a double-edged sword though.  A bigger flare up in risk could make for bigger improvements.  Simply put: more risk, more reward when it comes to floating, but if recent history and technicals are an indication, "risk" is probably still edging out reward if the rally doesn't continue in spades today.

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

MBS RECAP: Market Monotony Broken By Geopolitical Events; Big Rally For Bonds

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Gain access to the most accurate real-time back month TBA indications from Thomson Reuters and Tradeweb. LEARN MORE MBS RECAP: Market Monotony Broken By Geopolitical Events; Big Rally For Bonds

Today offered a triple or possibly quadruple-whammy for bond markets, almost exclusively in the form of overseas events.  The weakest among these was the notion that yesterday's announcement of new sanctions against Russia was a profound market mover.  While that's technically possible, it wasn't plainly evident in overnight trading.

By the start of the domestic session, bond markets were only in slightly stronger territory.  The next boost was the only domestic consideration today.  June Housing Starts came in much weaker than expected and broke below a trend of growth that had been intact since the beginning of 2011.  Bond markets improved on the data, despite a stronger-than-expected Jobless Claims report. 

Trading proceeded in relatively uneventful fashion until the day's first geopolitical catastrophe unfolded when news hit of a Malaysian airliner being shot down on the Russia/Ukraine border.  this set the tone for the rest of the day as bond markets rallied steadily and stocks moved lower. 

This brought 10yr yields right to the important 2.47% level before the last major geopolitical headline came out.  Just after 3pm, Al-Jazeera reported that Israel launched a major ground/air/sea assault on Gaza.  Market reaction was sporadic, peaking in intensity at 3:15pm, but never really doing anything but carry yields and stocks lower.  Israel confirmed the news at 3:40pm.

As is always the case when it comes to global flights to safe-haven assets, Treasuries outperformed MBS handily.  Even so, MBS weren't completely tuned out from the rally, managing to gain 3/8ths of a point by the end of the day.  This brings Fannie 3.5s to 102-15.

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live. Pricing as of 7/17/14 5:04PMEST Today's Reprice Alerts and Updates 4:09PM  :  Israel Ground Offensive in Gaza Sends Bond Yields Lower Still 2:17PM  :  Ongoing Positive Reprice Potential as Treasuries/MBS Hold Gains 10:08AM  :  Strong Philly Fed Data Reinforces Bounce Toward Weaker Levels 9:37AM  :  Bond Markets Stronger Overnight, and Another Boost From Weak Housing Data Matthew Graham  :  "yeah, it's still pretty sudden. And just because MBS are better positioned to soak up weakness doesn't mean a run to 2.66 in Treasuries wouldn't hurt" Hugh W. Page  :  "Still don't trust this rally just yet. Need some follow through IMO. I think for short timers it's a lock opportunity." Roland Wilcox  :  "MG so timely just shared analogy w/client who inquired about 10yr/MBS relationship" Sung Kim  :  "thank you MG, that really helped" Matthew Graham  :  "conversely, if broader markets lose ground, MBS will have already been lagging behind, and thus potentially not lose ground at the same pace." Matthew Graham  :  "That's what I meant by "slingshot" if broader markets improve." Matthew Graham  :  "when MBS are underperforming, they're like the dog pulling back reluctantly on the leash. Right now it's pretty stretched. If the master continues to walk forward, it could make for a relatively rapid move forward by the dog." Matthew Graham  :  "In this analogy, the "leash" is stretchy " Matthew Graham  :  "Let's begin by recalling an analogy we sometimes use of the 'Master and the Dog.' The overall momentum in bond markets is like the Master. The best benchmark we have for that is 10yr yields, which is why we talk about them so much. MBS are like the dog (and no, there's no deeper meaning here). The master sets the course for where the two will walk but the dog can tug at the leash--either reluctantly or eagerly. " Sung Kim  :  "MG, would you mind expounding on that comment?" Hugh W. Page  :  "That insight is invaluable info" Matthew Graham  :  "The fact that Treasuries are here with MBS having underperformed so consistently for the past 1.5 weeks may set us up for a bit of a slingshot if broader market stays strong, or to better endure weakness if broader markets bounce." Andy Pada, Jr.  :  "the real time chart is such an amazing tool" Andy Pada, Jr.  :  "as horrible the circumstances may be, I was able to lock in a bunch on live pricing at noon. " Discuss the MBS and Mortgage Markets on Our Streaming Dashboard

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Mortgage Rates Appreciably Lower After Geopolitical Headlines

AppId is over the quota
AppId is over the quota

Mortgage rates moved more decisively lower today, though not for any stable or happy reasons.  Such is often the case with interest rates.  As economic conditions worsen or as terrible events around the world fuel demand for bonds, prices of those bonds rise, causing rates to drop.  This was the case today for US Treasuries as geopolitical events rocked markets.  Mortgage-backed-securities (the bonds most directly responsible for mortgage rates) tend to move in the same direction as Treasuries.  Today was no different, but with geopolitical headlines moving markets, Treasuries get more of the benefit because they're a more readily available "safe-haven" asset.

The events in question include the shooting down of a Malaysian airliner near the Ukraine/Russia border as well as the inception of an Israeli ground-based assault on Gaza.  There were other considerations in play today, but these were the biggest.  The net effect was strong and steady improvement in bond markets and several instances of mortgage lenders revising rate sheets lower during the day.  The gains leave 4.125% as the most prevalently-quoted conforming 30yr fixed rate for top tier scenarios.  The ability for rates to remain this low or move lower is limited only by the geopolitical strife to continue escalating.  Once it stagnates or improves, rates are likely to snap back higher.  Even then, we have yet to see a move outside the 2-month range.

Loan Originator Perspective

"The Malaysian Jet incident today created a bit of geopolitcal risk helping bonds and therefore mortgage rates improve today. On a technical basis we've moved nicely down to a floor in pricing but it appears we've been unable to break through this floor to prove this rally has more legs. Given that, I believe short term closings should stronglyconsider locking to reap the gains we've experienced. Folks with a longer term to closing can likely keep a floating with a cautious and attentive stance and a close connection to your loan officer." -Hugh W. Page, Sen. Mortgage Consultant, Capital Partners Mortgage

"FLOAT--Treasuries have moved towards 2014 lows, and Mortgages are trailing, slowly, behind. If treasuries simply hold these levels we'll see rates improve. As always, though, be ready to lock if momentum changes quickly." -Brent Borcherding, www.brentborcherding.com

"News of the Malaysian airliner being shot down over Ukraine has sparked a flight to safety trade where investors sell stocks in favor of bonds. The news helped push the benchmark 10 year note to the bottom of our recent range at 2.47 which has been very solid resistance. I have been saying the last few days to float the highs and lock the lows....however, we just received breaking news of a ground invasion of Gaza by Israel forces. This news has pushed the 10 year even lower. At this point, lenders will be very slow to pass along the improvements. Even though we are at the best levels in quite some time, I would recommend to float overnight to allow lenders additional time to pass along these improvements. " -Victor Burek, Open Mortgage

Today's Best-Execution Rates

30YR FIXED - 4.125
FHA/VA - 3.75%
15 YEAR FIXED -  3.375%
5 YEAR ARMS -  3.0-3.50% depending on the lender

Ongoing Lock/Float Considerations

The hallmark of 2014 so far has been a disconcertingly narrow range in rates.  Too many market participants bet on rates going higher in 2014, and markets have punished that imbalance with a paradoxical move lower. As of June, rates were officially lower year-over-year, but that's due to rates' path higher in 2013.  The current path in 2014 remains sideways.  European markets continue to play a nagging role in the background, generally helping rates in the US remain lower than they otherwise might be.  From a wider point of view, we're in limbo, waiting for the first significant move away from the narrow range.  A rally into late May stood a chance to act as this break, but rates have since returned to what were previously the lower limits of the 2014 range. As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.'  Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy.  It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).  Chief Operating Officer, Mortgage News Daily / MBS Live A former originator, Matthew began writing for Mortgage News Daily in 2007, covering a wide range of topics. Seeing a need in the marketplace, his focus increasingly shifted toward relating MBS and broader financial markets for loan originators. ... more

MBS RECAP: Market Monotony Broken By Geopolitical Events; Big Rally For Bonds

AppId is over the quota
AppId is over the quota
Gain access to the most accurate real-time back month TBA indications from Thomson Reuters and Tradeweb. LEARN MORE MBS RECAP: Market Monotony Broken By Geopolitical Events; Big Rally For Bonds

Today offered a triple or possibly quadruple-whammy for bond markets, almost exclusively in the form of overseas events.  The weakest among these was the notion that yesterday's announcement of new sanctions against Russia was a profound market mover.  While that's technically possible, it wasn't plainly evident in overnight trading.

By the start of the domestic session, bond markets were only in slightly stronger territory.  The next boost was the only domestic consideration today.  June Housing Starts came in much weaker than expected and broke below a trend of growth that had been intact since the beginning of 2011.  Bond markets improved on the data, despite a stronger-than-expected Jobless Claims report. 

Trading proceeded in relatively uneventful fashion until the day's first geopolitical catastrophe unfolded when news hit of a Malaysian airliner being shot down on the Russia/Ukraine border.  this set the tone for the rest of the day as bond markets rallied steadily and stocks moved lower. 

This brought 10yr yields right to the important 2.47% level before the last major geopolitical headline came out.  Just after 3pm, Al-Jazeera reported that Israel launched a major ground/air/sea assault on Gaza.  Market reaction was sporadic, peaking in intensity at 3:15pm, but never really doing anything but carry yields and stocks lower.  Israel confirmed the news at 3:40pm.

As is always the case when it comes to global flights to safe-haven assets, Treasuries outperformed MBS handily.  Even so, MBS weren't completely tuned out from the rally, managing to gain 3/8ths of a point by the end of the day.  This brings Fannie 3.5s to 102-15.

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live. Pricing as of 7/17/14 5:04PMEST Today's Reprice Alerts and Updates 4:09PM  :  Israel Ground Offensive in Gaza Sends Bond Yields Lower Still 2:17PM  :  Ongoing Positive Reprice Potential as Treasuries/MBS Hold Gains 10:08AM  :  Strong Philly Fed Data Reinforces Bounce Toward Weaker Levels 9:37AM  :  Bond Markets Stronger Overnight, and Another Boost From Weak Housing Data Matthew Graham  :  "yeah, it's still pretty sudden. And just because MBS are better positioned to soak up weakness doesn't mean a run to 2.66 in Treasuries wouldn't hurt" Hugh W. Page  :  "Still don't trust this rally just yet. Need some follow through IMO. I think for short timers it's a lock opportunity." Roland Wilcox  :  "MG so timely just shared analogy w/client who inquired about 10yr/MBS relationship" Sung Kim  :  "thank you MG, that really helped" Matthew Graham  :  "conversely, if broader markets lose ground, MBS will have already been lagging behind, and thus potentially not lose ground at the same pace." Matthew Graham  :  "That's what I meant by "slingshot" if broader markets improve." Matthew Graham  :  "when MBS are underperforming, they're like the dog pulling back reluctantly on the leash. Right now it's pretty stretched. If the master continues to walk forward, it could make for a relatively rapid move forward by the dog." Matthew Graham  :  "In this analogy, the "leash" is stretchy " Matthew Graham  :  "Let's begin by recalling an analogy we sometimes use of the 'Master and the Dog.' The overall momentum in bond markets is like the Master. The best benchmark we have for that is 10yr yields, which is why we talk about them so much. MBS are like the dog (and no, there's no deeper meaning here). The master sets the course for where the two will walk but the dog can tug at the leash--either reluctantly or eagerly. " Sung Kim  :  "MG, would you mind expounding on that comment?" Hugh W. Page  :  "That insight is invaluable info" Matthew Graham  :  "The fact that Treasuries are here with MBS having underperformed so consistently for the past 1.5 weeks may set us up for a bit of a slingshot if broader market stays strong, or to better endure weakness if broader markets bounce." Andy Pada, Jr.  :  "the real time chart is such an amazing tool" Andy Pada, Jr.  :  "as horrible the circumstances may be, I was able to lock in a bunch on live pricing at noon. " Discuss the MBS and Mortgage Markets on Our Streaming Dashboard

Join Now or Login to Post Comments

MBS Day Ahead: Basically Just Waiting on Geopolitical Risk; Dangerous Game for Bonds

AppId is over the quota
AppId is over the quota

Although economic data had some small role to play in yesterday's strong bond market rally, the day was really all about geopolitical risk.  If we've learned anything about geopolitical risk as a market mover, it's to not rely on it as a long term guidance giver. 

Even after the risk merely levels off, markets usually bounce back.  Maybe not today, maybe not tomorrow...  Maybe not even soon, but on the other hand, it could be soon!  Point being: don't take the newfound move of 10yr yields into the 2.4's for granted.

Heck, we can't even take the same low-rate pleasure in 2.4+ 10yr yields as we did in late may because MBS have been lagging Treasuries so much.  Thankfully though, that SHOULD put us in a better position going forward--one where MBS is more willing to keep pace with any additional rallies and less compelled to keep pace with Treasury weakness if we go the other direction.

If we do happen to turn a corner today or Monday, the implications are pretty depressing from a technical standpoint.  Such a bounce would not only end up contributing to a long term inflection range from 2.40 to 2.51, but it would also introduce new technical signals with longer term implications. 

One of these would be a "bearish divergence" in RSI.  RSI, or the "Relative Strength Index" is one of the most popular momentum indicators around.  When its line is moving up or down, momentum is increasing in the direction of the movement.  When the line hits either horizontal level at 30 or 70 (it's always 0-100), the security is overbought or oversold, which basically means it's ripe for a correction as soon as it crosses back over the horizontal line heading the other direction.

A bearish divergence occurs when momentum is telling a different story than the charted security--in this case, 10yr yields.  Note in the chart below that (IF we bounce higher in yield soon) that yields will have bounced at lower lows than those seen in late June, yet the RSI line will be bouncing at higher lows.  The conclusion is that underlying momentum doesn't support the the increasingly aggressive rally. 

Keep in mind, that's just one technical study.  It wouldn't necessarily doom rates to a an epic sell-off.  But it does serve as a reminder of the ephemeral nature of geopolitically-motivated rallies, and would be one more mark against the sustainability of current levels.

Whether or not things play out in this manner remains to be seen.  Markets are essentially reduced to headline watching today as the event calendar is light.  One thing to keep in mind is that geopolitical risk often undergoes significant change over the weekend, so it's less safe than normal to assume Monday's rates will be close enough to Friday's. 

That's a double-edged sword though.  A bigger flare up in risk could make for bigger improvements.  Simply put: more risk, more reward when it comes to floating, but if recent history and technicals are an indication, "risk" is probably still edging out reward if the rally doesn't continue in spades today.

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.