TGIF Market and Interest Rate Update

A better start this morning for the bond and mortgage markets with pre-market futures trading pointing to a weak pen in the stock market. Stocks starting lower, led by emerging markets, as shares in Russia headed for the longest losing streak in seven weeks after Standard & Poor’s cut the country’s credit rating. The ruble led currencies lower and oil declined. S&P cut Russia to its lowest investment grade, saying further downgrades are possible if economic growth deteriorates and the Ukraine conflict sparks wider sanctions. Investors however don’t care much when the rating agencies decide to downgrade or upgrade.

Russia/Ukraine; Ukraine stopped its attacks on Russian speaking citizens that are holding key buildings in the country. Russia moved its troops closer to the border and increased military exercises with a display of air power. Putin has said any more killing of Russian people will increase the likelihood Russia will move into Ukraine to protect Russians who are increasingly demanding that east Ukraine go back to Russia. The tensions have not lessened, in fact they have increased and are leading an increase in safety moves into US treasuries and supporting better MBS prices. John Kerry late last night warned Russia President Vladimir Putin he’s running out of time to ease tension in Ukraine. Kerry said it will be “an expensive mistake” if Putin does not meet commitments made at a meeting in Geneva a week ago. While by blood runs red, white and blue; the reality is the US has very little leverage in this situation.

WSJ reporting this morning that mortgage lending has declined to the lowest level in 14 years in Q1. Lenders originated $235 billion in mortgage loans during the January-March quarter, down 58% from the same period a year ago and down 23% from the fourth quarter of 2013, according to industry newsletter Inside Mortgage Finance. The decline in mortgage lending last quarter stemmed almost entirely from the slide in refinancing. Loans for home purchases were basically flat from a year earlier and down from the fourth quarter. These charts from the Journal tell the story (a shame some of our readers will not be able to see the charts):

Safety moves are pushing yields lower and MBS prices higher this morning. Ukraine/Russia and the decline in stocks so far today have driven the key 10 yr note to 2.66% at 10:00, down 3 bps from yesterday’s close and more importantly taken the note below 2.70%. Technicals remain bullish but as noted previously, the tight range somewhat negates some of the near term momentum oscillators as the yield moves back and forth with no directional follow-through that lasts more than a day or so. I would suggest floating your rate to start the day; keep alert however, any reversal you should lock immediately.

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