Despite Weaker Treasuries, Mortgage Rates Improve

Interest Rates

Mortgage Rates improved again today.  This would be a good day to NOT be looking at US Treasuries for an indication of mortgage rates.  10yr yields moved about 0.02% higher while the Best-Execution mortgage rate at many lenders moved down to 3.875%.

The increased availability of 3.875% Best-Ex rates today would have us
feeling even more like locking than simply entertaining 4.0%
Best-Execution offerings of the past few weeks.  Nothing changes about
the rate guidance at current levels. 


  • 30YR FIXED –  4.0%, increasing amount of 3.875’s.
  • FHA/VA 
    3.75%, fewer 3.875’s
  • 15 YEAR FIXED – 
  • 5 YEAR ARMS –  low
    3% range, huge variations from lender to lender.


In a fundamental sense, we’re well aware of the fact
that European drama continues to help domestic bond markets. 
Technically, we’re impressed that mortgage rates have been this flat for
this long.  The “batting cage” metaphor or the chart below it if you
prefer, continue to be the best guidance we can offer in this uncertain
environment.  With the ongoing sideways movement of Best-Execution
around 4%, the chances increase that the next move will carry a bit of
momentum with it (as if the current calm is akin to “storing energy”). 
If it goes in a mortgage rate-friendly direction, there’s limited
benefit (an eighth to a quarter of a point of improvement) versus the
damage that could result from it going the other way.  Fortunately,
neither of those eventualities appear to be happening at the moment, so
it’s hard to go wrong.  We’ll let you know the day that changes.

Batting Cage Metaphor:

(this can be applied to any endeavor where you’re trying to “go out on a high note”).   Rate
offerings from lenders over the past month have been like a temperamental
pitching machine in a batting cage-generally getting the ball across the plate,
but with no really juicy pitches.  But recently, we’ve seen some more
consistently good pitches (best-ex around 4.0% instead of 4.25%).  Sure…
you’ve seen better, but not by much (3.875% and RARELY 3.75%).  How
many more will you count on before calling it a day? 
Personally, I’d
like to end my batting cage session with a nice hit.  The more
“pitches” you wait for with rates already at a 4.0%, the greater the
risk that the next pitch will be a curve-ball.  To drop the metaphor,
although rates this low CAN go slightly lower, the improvements are fairly
minimal compared to how much higher they could go.  Still, if you’re not
in any particular need to refinance and are operating on a longer-term
perspective, we continue to feel good about that “wall” at a 4.25%
best-execution level as a good stop-loss point for inclined floaters.  Ask
us to explain more about that if it doesn’t make sense. 

Another way of looking at the lock/float spectrum based on the lowest
MBS coupon actively trading and being produced in the secondary
mortgage market:

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