Mortgage Rates Skyrocketed

Mortgage rates skyrocketed today following the release of the Minutes from the most recent Fed meeting.  At the time of the Fed's last policy announcement at the end of April, financial markets were nervous that the Fed would more firmly indicate their intention to hike at the June meeting.  When that announcement had no such clues, markets breathed a sigh of relief and rates moved steadily lower in the following weeks.

What I said yesterday… “A pattern may be developing - when is good news bad news? When the economic data is better than expected? It is not like the old days. The yield curve is flattening, short rates increasing while at the long end of the curve rates have been stable. Market still overall do not expect the Fed to increase rates in June, but it is peculiar that strong data points are bothering the equity markets. A flattening curve is something to pay attention to now with the Fed in play….” No surprise that markets have lost faith in the credibility of the Fed; too many comments that don’t match Fed actions and too many wide disagreements within the Fed.

I warned folks that the markets were beginning to act like a rate increase is coming. Still there were a big majority espousing no way the Fed will move soon. Those that have continued to float are the clunks you are hearing hitting the ground wanting last week’s rates today.  I wonder if they would sell me some of the Walmart shares at 1965 prices.

Is June a done deal? I unfortunately may have to think so but there is one more employment report and more April and May reports yet to surface. Then there is the British vote on June 23 whether or not to exit the EU that in itself may delay the Fed a month longer. To change the timing on an increase the economy will have to do a U turn. Q2 growth currently expected +2.5% and inflation is slowly increasing. The Fed will not wait much longer with strong employment (even though most jobs are at the low end of the pay scale) and increasing inflation. By the end of today the bond market will have almost erased the idea the Fed will not move in June. The 10yr yield since last Friday has increased 19BPS to 1.85% in three sessions. MBS prices in the last three days have lost 69BPS, and the 30yr mortgage is increasing.

In summary, following the FED minutes, rates moved in a big way.  Lock is the key now – unless you do not have any time constraints – then floating may pan out over time.  I believe we are yet to see the lows of the current interest rate market, but again, it is more driven on time tables than anything else.