Mortgage Rates Take a Beating This Week

It has been one hell of a week in the rate markets. Since a week ago last Thursday, the 10yr yield has increased from 2.14% to 2.36% this afternoon.  MBSs overall took another beating this week after a few days where we thought we might be getting some of this back. Interest rates began increasing back on the October 4th thru the 12th, consolidated until October 28th, then began the current huge increases. Way back at the beginning of October when rates began moving higher, Donald Trump had been declared dead in the water, a dead man walking. That he won added belief tax cuts for business and consumers will come next year, at least that is the bet being laid now. Also, a re-work of Obamacare is being perceived as giving consumers more spending power in the future.  

It was just a matter of time how long investors were going to hold notes that were barely above the low inflation rate, presently at about 1.8%. Also, adding fuel to this rampage was all the positive economic news that is feeding into the rate hike next month by the Feds.

The litany of events, data and global protectionism that is likely - all factors in the rapid increase in rates. But the overlying reason - after 30 years of declining rates they just could not go any lower. The 10yr hit 1.36%, mortgage rates under 3.50%, the attitude was that rates would move lower. Like pushing on a wet noodle, it was against reality to believe that unless there was a major geo-political event and even then, rates were destined to begin increasing. Let’s keep it in perspective - consumers were ’sure’ rates would move lower, and even us as mortgage lenders, equally felt this as well.

Next week is a short week with Thanksgiving and many leaving on Wednesday and returning at all next week. Should see a more docile market. Treasury will sell 2s, 5s and 7s Monday through Wednesday. Housing data is the focus next week with both October existing and new home sales Tuesday and Wednesday respectively. FOMC minutes next Wednesday. The NYSE will close at Noon next Friday.

In summary, bond markets have crossed specific thresholds that I was hoping would serve as resistance.  This causes major concern for loans not locked prior to the Trump effect in mortgage rates.  Is it time to abandon the float boat?  Is it time to eat the loss?  It very well may be.  The momentum is overwhelmingly against lower rates for now, and until that changes, rates are poised to continue to rise.  I felt that 2.30% on the 10yr treasury was my absolute max ceiling on floating, but that has clearly not held up. The bears win this round. THE TREND IS NOT OUR FRIEND, floating is a high risk, low reward proposition.