Mortgage Rates on the Move

Note:  For some reason, this report from last night did not download properly.

Mortgage rates are on the move, heading noticeably higher after a subtler increase yesterday.  From an exceptionally bullish bond market and expectations rates would continue to attract buyers, in two sessions it all went out the window. Belief Japan would add more stimulus and the ECB would be right behind along with the Bank of England turned markets on a dime. The stock market (S&P) made a new all-time high yesterday, this morning it looked like the DJIA would follow. Investors and traders dumped safety trades and the 10yr yield has increased 16BPS in yield since Friday’s close.

With that, this week now stands as the first major push back against the impressive run to near-record lows that's taken place since the UK voted to leave the European Union in late June.  This is a battleground for mortgage rates at the moment, and it corresponds to levels in 10yr Treasury yields (even though rates are definitely NOT moving in lock step with Treasuries these days).  Still, the mid 1.5% territory in 10yr yields is a bit of an inflection point for the overall rate market, and general trends in the overall rate market will influence the direction of mortgage rates.

The next FOMC meeting on July 26 and 27.  It is unlikely the Fed will move then but markets cannot relax. St. Louis Fed Pres Bullard saying there is one more hike coming this year. But is very hard to read the Fed - the bank has been off course for three years about the economy and abut where the FF rate would be in the future. Last December the Fed said there would be six rate increases this year. A few weeks ago markets were generally thinking no increases until late next year.

If 10yr yields move much above 1.53, it would be taken by many as a sign of more weakness to come (ie: higher rates).  Conversely, if rates happen to hold their ground and move lower tomorrow, it would be a strong sign of commitment to the general range surrounding these long-term lows.

In summary, is this the end of low rates? I still do not believe it is but there is a point where traders and investors just will not step up until the rates bounce back up for a better entry point. Over the past couple of days, I have talked to a number of my customers and locked them up in the next 15 days, and a few in 30 days as treasuries sold off dramatically.  We have not lost too much ground yet on MBS, but that could change.  The long term downward trend is still intact, but the short term trend is upwards.  In my mind, nothing wrong with locking at these levels, unless you want to call the market's move up a bluff.  I am playing with house money, taking some chips off the table, putting them in my borrowers' pockets.