Mortgage Rates Took Off Again Today

Mortgage rates decided to take off today after a morning that was very tame.  The news was not good as the 10yr note after testing and holding 2.45% three times in the last week broke to a new high for the move to 2.47%. Technically breaking the support such as it was, now points to another move higher in interest rates. The increase pushed MBS prices down 33BPS with most banks repricing for the worst this afternoon.

You cannot have low interest rates when economic growth and increasing inflation is so strongly believed as it is now. Beside the wild increases in the stock market this week that normally work against interest rates - next week the bond market has the FOMC meeting on Wednesday (14th) and Treasury is set to borrow 3s, 10s and 30s ($24B, $20B, $12B respectively). There is no chance the Fed will pass on the first move in the last year. The conventional belief is for 0.25% increase. The policy statement is the focus, as we want to see how aggressive the comments about the economy and the Fed’s belief about increasing inflation. Presently the US markets are all agog about the economic outlook next year, the stock market making new all-time highs every day. It is called the Trump rally, there are no doubters now - everyone in the pool except the mom and pop consumer – yet - although the is some evidence consumers are sticking their pinkies into the water. History is replete with small investors buying the highs, hope that is not the case this time.

In summary, the essential point is that bond markets are anxious, and that anxiety is being managed by selling bonds.  It could still be the case that bond traders are interested in keeping rates from moving above recent highs, but we will not have a great sense of that until the middle of next week.  The blanket advice for any new loans is to lock in this environment.  That said, risk-takers might consider the fact that 10yr Treasury yields (a good proxy for momentum in longer-term rates, like mortgages) have yet to break above 2.50%, despite facing maximum anxiety this afternoon.  2.50% could be used as line in the sand that lets risk-takers know it is time to lock.