June 12, 2014
Mortgage rates made a stronger mover lower today, following a well-received 30yr Treasury auction. Treasury yields don't directly dictate mortgage rates, but MBS (the mortgage-backed-securities that actually do dictate rates) tend to come along for the ride when Treasuries make big moves. That's what happened today.
Treasury conducts auctions for it's various maturities once a month, and today's 30yr Bond auction was the last of the week. This is important because primary dealers (the biggest financial firms that buy debt directly from the government) are required to bid on Treasury auctions. That means there is a certain amount of apprehension as to how the auctions will go, and occasionally a certain amount of relief when they're over. Sometimes the auctions go better than others and sometimes that 'relief' is more pronounced. Today was a 'win' on both accounts.
The strong auction results were accompanied by headlines out of Iraq as well as heavy selling in stocks. Both potentially contributed to the move lower in Treasury yields. The secondary mortgage market was merely a bystander, but willing enough to come along for the ride. Many borrowers will still be quoted the same rate today. In terms of effective rate, the improvement equates to 0.03%. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) remains 4.25%.
This move has the potential to mark a reversal from what has been a fairly pervasive trend toward higher rates since late May. Considering that generally strong relationship between Treasuries and mortgage-backed-securities, it makes sense to keep an eye on 2.57% in 10yr Treasury yields. If we happen to be moving lower from there tomorrow, it would be a good sign.
Loan Originator Perspective
"What a difference a day makes! Markets were complacent yesterday, but now today's 30 year bond auction today surpassed expectations and rates made a stronger move. We've already seen plenty of improvements in today's rates sheets, but lenders don't typically pass all the gains along immediately. Looks like floating (at least overnight) is an acceptable risk. Be sure to tune back in tomorrow!" - Ted Rood, Senior Mortgage Planner, tedroodteam.com
"Some decent gains today within a relatively quiet week make the lock/float decision a little unclear. I think with shorter term closings (less than 30 days) it makes sense to capture these gains and lock your rate. With a Fed meeting on the horizon next week it's important to keep connected to your mortgage professonal and avoid complacency. Things can heat up and move very quickly ! Be ready for it." -Hugh W. Page, Sen. Mortgage Consultant, Capital Partners Mortgage
"After the market yawned at yesterday's 10 year treasury auction today's 30 year auction was market moving and in a positive way for rates.. The move off strong support is painting a technical picture that rates may improve further. These things are not always 100% accurate but the risk vs reward of floating appears at the moment to be low enough let things ride at least into tomorrow." -Manny Gomes, Branch Manager, Norcom Mortgage
"We might be at the beginning of a shift in trend, back toward the lower end of the range. Today's economic data came in slightly weaker, and the final Treasury auction was very strong which has led to a nice rally in rates. With Treasury supply out of the way and global issues popping up, I think the conditions are favorable to continue floating. As always, if you are happy with the rate, and want to remove all risk, then lock later today to allow lenders time to pass along at least some of the improvements." -Victor Burek, Open Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.25%
- 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 Fed has stayed the course on their $10bln per meeting reduction in bond buying, though markets have handled it relatively calmly compared to the days of "coming to terms with tapering" in 2013.
- Rates fell significantly in January, leveled-off in February and took choppy steps higher in March. From there, they settled into a flat range mostly consisting of 4.375 and 4.5%, but with occasional forays to 4.25 and 4.625%.
- The bias had been very slightly toward higher rates, it reversed course in early April as expectations grew concerning European Central Bank easing. On several occasions, those expectations would go on to overwhelm domestic economic data--normally the main source of guidance for market movements.
- As of the third week in May, rates were as low as they've been since June 2013, more than confirming a break below the 2014 range. They remained in that range through month-end and grew more volatile ahead of the June 5th European Central Bank Announcement.
- Looking back at recent movement, it's had a disconcertingly small amount to do with 'normal stuff' like economic data and Fed policy. Temporary and unpredictable factors currently account for too much of the movement to make firm bets on rates moving either direction in the short term.
- (As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario. There are many reasons a quoted rate may differ from our average rates, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).