Mortgage Rates Seem Poised to Move Higher

Mortgage rates moved modestly higher today, as it is once again at the top of its month-long range.  The 10yr hit 1.59% this afternoon going into the weekend and ahead of next week’s key data and Janet Yellen next Friday. There is not anything new here, as long as the 10yr holds 1.60%.  However, if it does break this barrier, I do expect a quick move to 1.70% and mortgage rates to increase along with it.

If you take a close look at what the 10yr has done recently, it has been hitting the top and bottom of a narrow path.  There is a technical analysis but not enough to clearly show how vulnerable the mortgage market is if the 10yr breaches support. Do not fall into the idea mortgages move differently to the 10yr note - as I have argued that for many years from those that cannot see the forest.

The narrowing range cannot last much longer.  It could drop back to 1.50% breaking the trend line but the odds favor an increase in rates next week ahead of Janet Yellen’s speech on Friday and an increasing concern from increasing numbers that are now believing the rate market is overbought and well under where rates should be given employment and what is perceived as an increase in inflation. I do not see inflation and I do not expect it to increase but markets are following the idea.

Next week we have a lot of data to digest along with more Treasury auctions.  This narrow trading may be coming to an end next week.  There's never a guarantee about future market movement, of course, but lots of investors are looking at next week's Jackson Hole symposium (a big fireside chat with the Fed where the sitting Chairperson often gives a slightly less cryptic outlook for the near-term path of rates) as the moment that rates will have to pick a side of the range and move in that direction for a while.  Granted, the Fed Funds Rate does not directly affect mortgage rates, but if markets suddenly see greater chances of a Fed rate hike based on something Yellen says as Jackson Hole, mortgage rates would likely opt to move higher. 

In summary, rates remain in this narrow range as it has for over 30-days – but next week may change the thinking of mortgage bond traders and move this higher rather than lower.  Right now, I am playing the hedging the worst as the rates have not gone down as I had thought they would – especially after what happened in England.  It may be the time to just lock in at these low rates and rest easy – the risks are just too much to see it lower in the near future.