All Things in Moderation

Markets are flat this morning ahead of a big week for data and events. Bonds and MBS are down.

Industrial Production fell .1% in August, while capacity utilization dropped by 30 basis points to 78.8%. It looks like the notoriously volatile motor vehicle sector accounted for the decline. The previous month had a big increase in motor vehicles, which it looks like we gave back in August.

The Empire Manufacturing Survey came in at 27.5, a multi-year high.

This week we will have the FOMC meeting, with the decision on Wed afternoon. This meeting will include new projections and also should include a press conference. The Street will be focusing on any changes in the rate projections from the voting members (note that the mix of voting members will turn much more dovish at the beginning of 2015).

One of the interesting features of mortgage rates this summer has been the decoupling from long-term bonds. As rates fell during the summer, mortgage rates stayed stuck at the 4.25% range. Now that bonds are selling off, mortgage rates are still relatively constant. Look at the graph below. The top line is the 30 year fixed rate mortgage according to Bankrate, and the lower line is the 10 year bond yield. The correlation has completely broken down.