Mortgage Rates Still Rising

Mortgage rates continued pressing into the highest levels since July--themselves the highest levels of the year. The bond and mortgage markets were under more selling pressure today on the same reasons the stock market is concerned. Until the October employment report last Friday markets were not expecting a rate increase from the Fed until next year, maybe not until mid-2016. Now, at least for the moment, the rate markets have turned very bearish with mortgage rates on 30yr fixed loans up more than 30BPS and the 10yr note yield spiking 36BPS in three weeks.

Too excessive? I believe it is, markets are over-thinking a small increase in rates. That though is not what we should act on, act on the moment and what markets are doing, and mortgage originators live in the moment. Simply stated, the equity market is technically overbought while the recent lows in interest rates were too low, betting on the Fed holding rates at these current lows. Presently uncertainty is dominating.

Treasury sold $24B of 3yr notes this afternoon. The demand was weak, suggesting short term rates still have more increases ahead. Tomorrow the Treasury will issue a new 10yr note with $24B to sell. Tomorrow October export and import prices, with September wholesale inventories reporting a little later in the morning.

The bond and mortgage markets are currently oversold when seen in the near term. I expect a little reversal this week but hasten to point out any bounce will not be a new trend to lower rates, just a corrective retreat as traders book strong profits shorting the bond market since the beginning of November. I do not recommend floating, expecting a rebound.

In summary, for those hoping for a fast rebound from Friday's sell off were disappointed today, as we lost further ground and rates rose slightly.  At some point, we will level off, and perhaps even undo some of the carnage, but until this happens, I am advising locking early rather than risking further losses.