Mortgage rates rose yesterday after a better than expected advance read on third quarter GDP sent benchmark yields higher early in the trading session. Making matters worse for the fixed income sector was a recovery rally in stocks and a 1pm Treasury auction. As explained in previous posts, added supply of Treasury debt can have negative effects on yields as traders look for any reason to force rates higher in an effort to earn greater returns. Its the old econ 101 principle: if supply is greater than demand, then prices must fall enough to entice demand. Well...when Treasury prices fall, yields rise, and so do mortgage rates. Yesterday the deck was stacked against the rates market...better than expected econ data, a Treasury auction, and rallying stocks! That's why mortgage rates moved higher....

Following the seemingly bottomless rates selloff that occurred on Monday, benchmark Treasury and MBS prices underwent a corrective rally yesterday. Buying beget more buying and before we knew it, the 10yr Treasury note yield was back under 3.50%, helping MBS prices move considerably higher. A strong auction of $44 billion 2 year Treasury notes helped add momentum to the rally as well. MBS prices held into the close which allowed many lenders to republish rate sheets for the better, lowering consumer borrowing costs. Again, MBS have moved back into the well defined range which we have used as a gauge of lock/float strategies. To remind readers, since MBS prices began trading in a range, borrowers have had great success floating when MBS prices were at the low side of the range and locking when MBS were at the high side of the range. The last couple days, MBS have been testing the low end of the range, thus my recommendation for floating. With yesterday’s rally, MBS have moved comfortably into the middle of the range and mortgage rates are lower.

The well defined range we have used to gauge our lock/float sentiment is being challenged. Since the range proved itself a reliable indicator of demand for debt in the benchmark fixed income market, we have advised consumers to lock when mortgage prices were near the high side of the range and to float when MBS prices were at the the low side of the range. Well...this morning the range broke and prices fell through a key level of support. While we are not in panic mode, our preferred indicator of lock/float strategy is being put to the test.

After opening the day lower yesterday, MBS managed to rally steadily off the lows before a late day stock sell off added steam to the upward price momentum, which resulted in a few lenders repricing for the better by day's end. Several factors contributed to the late day price spike. The findings of the Fed's Beige Book painted an uncertain economic picture, then Wells Fargo was downgraded from 'hold' to 'sell' by a prominent analyst. These two events combined to knock the wind out of the stock market, which resulted in a rally in the benchmark debt and MBS market. Unfortunately the early morning weakness has forced most lenders to take back yesterday's rate sheet gains.

Prices of mortgage backed securities posted modest gains yesterday in an uneventful trading session. Intraday gains didn’t warrant reprices for the better from lenders, however because the rally has carried over into today, mortgage rates are better this morning! After touching 5 month lows before moving higher last week, mortgage rates are almost as aggressive as they were two weeks ago. If you have been floating your rate, you can secure better terms today...take advantage of the gains. I go back to the saying, lock at the MBS price highs, float at the MBS price lows.

Mortgage rates moved slightly higher yesterday but managed to weather the storm of better than expected economic data and earnings reports. Today, mortgage-backed security prices are mostly unchanged and mortgage rates are a few basis points lower. However, compared to last week mortgage rates are about 0.25% higher.

Reports from fellow mortgage professionals indicate that mortgage rates have moved higher into the 4.875% to 5.125% range for well qualified consumers. To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year term you should expect a par rate in the 4.375% to 4.625% range with similar qualifications as the 30 year term. If you are planning to access home equity, you should expect a higher rate of .125% to .25% or additional closing costs.

The bond market is closed in observance of Columbus Day. While mortgage-backed securities are not being traded today, several lenders have published rate sheets and many originators are still working...so dont be afraid to contact your loan officer!