Mortgage Rates Still Rising

Mortgage rates rose at a quicker pace today, bringing them up to the highest levels in more than a month. Selling continued today in the bond and mortgage markets. The 10yr note is cutting through resistance levels with ease since the FOMC meeting last week. MBSs following as usual but the majority of selling is treasuries as stocks rally. The policy statement led to an increase in the idea that the Fed will move in Dec. Stocks like that because if the Fed were to begin ‘normalizing’, whatever that is these days, that implies the economy is going to improve and inflation is about to increase. Truly amazing that markets still have confidence in the Fed’s ability to forecast economic growth. For almost two years now each quarter the Fed has released its growth forecasts on the economy and inflation, only to revise the outlook weaker. Maybe it is the stopped clock theory.

Tomorrow starts the two day speculation and guesses on what job growth was in October. In the early morning at 7:15AM, ADP will report its private jobs growth, markets looking to a 185K growth after Sept increase of 200k. Look for revisions to September when the report is released. Later the October ISM manufacturing index will come out.

No other way to look at it - the bond and mortgage market have rotated to a bearish trend. Selling in long term treasuries has taken the 10yr note from 2.02% on 10/27 , a week ago, to 2.22% this afternoon. Mortgage rates increased but by 10BPS at most. The outlook for lower rates we held up until two weeks ago has gone away. As long as the risk trade is on in equity markets interest rates have no strong support. That said, the current outlook, like all other previous current outlooks does not have any significant underlying confidence.

Volatility remains a constant threat with several important pieces of economic data coming out between now and Friday morning.  While rates rarely move higher in a straight line, the rewards for floating are not worth the risks until we see where the current trend is going.

In summary, rates continued their trudge upward today, and bond yields broke into recently uncharted ground.  The 10yr benchmark treasury is up to 2.21%, after being at 2.02% October 28th.  It's no longer a question of whether rates are going up, it is where/when will they stop rising. The trend is not our friend, and a robust NFP report on Friday could inflict major additional damage to rates.