MORTGAGE RATES FALL WITH BAD NEWS
YIPPEE for me
weed out high interest rates and refinance or
jump to another lender to avoid "unlock" penalties
WAIT UNTIL THURSDAY 5/18/17
but not Friday (every bond trader goes to the Hampton's for the long weekend to lock,
maybe Monday. if open or Tuesday depends on Lender
·
Overnight headlines of former FBI director Comey's
records of potential wrongdoing on the part of Trump regarding the FBI's
investigation of former Security Adviser Flynn spark panic but they also shake up markets. Bad news brings down mortgage rates which have been climbing in past months
So what do we hear
o vocal
outrage among other lawmakers
o uncertainty
among investors
o yelling "impeachment" in news
media
o and the sky is falling
· "Impeachment" news is scary stuff, but level brains in the room agree that the
political uncertainty surrounding this sort of drama raises bigger
roadblocks to fiscal policy making than those encountered in mid-March.
·
Bottom line: markets are worried that all the "stuff"
that drove the big move in late 2016 is suddenly not quite as justified--or at
least that it definitely won't be happening quickly ("something"
would still likely happen even if Trump is impeached, because we'd still have
one party in control of law-making, and they'd be arguably more unified under
Pence).
Long-Term
Lock/Float Strategy
· POST TRUMP election trade was said to be the death of the
decades-long bond market rally, but some traders simply saw it as a temporary
pull-back with the next rally being driven by geopolitical and fiscal
uncertainty surrounding the new administration.
·
The "temporary pull-back" explanation makes sense as rates entered a downtrend in mid-March. They bounced out of
that downtrend and had been moving higher until mid-May.
·
Either way, risks are far more balanced than they were before
mid-March
Short-Term
Lock/Float Strategy
·
Today's huge move obviously turns short-term strategy on its
head.
·
Risk-averse clients who are inclined to lock are justified
in doing so, provided the lender in question has passed along enough of the
market gains. I'd be looking for at least 3/8ths of a point
·
we'd like to see more of the gains passed
along and are willing to accept the risk that M B S prices will be a quarter
point weaker tomorrow. A quarter point of losses should leave many rate
sheets right about where they are now. A bigger sell-off is a risk that
comes with the territory of floating.
· Realize that
big pullbacks/reversals are common in cases like this. Interest rates are going to jump to touch ceiling and crash on the court in the same day. Advantages last for a brief time. Floaters
understand we're likely to see that weakness and they'll need to bail if it
gets out of hand (i.e. if 10yr yields were moving back above 2.27.
Technicals/Trends
in 10yr
· TOP
o 2.27
§ this
is your best friend if you're floating longer-term now.
o 2.35%
§ we'll
talk about this if 2.27% breaks
o 2.21%
§ today's
lows
o 2.15-17%
"The Gap" from Nov 2016. Breaking below this
leads to the promised land, but a bounce would be as bad as a break would be
good.