Mortgage Rates Following the 10-year Treasury Upward

The yield on the 10-year Treasury finally breached above the key psychological threshold of 3.0% yesterday for the first time since 2014. That pushed mortgage rates up a little to levels that are continuing to be held today. Rates seem poised to continue rising over the coming weeks and months as inflation which has been brewing for several years has now gained some momentum.

Where Are Mortgage Rates Going?                     

>>> Continuing to increase after the 10-year Treasury breach

For the past several weeks, we have been watching the fast movement on the yield of the 10-year Treasury note as it stalled briefly before breaking the key market threshold of 3.0%. That mark was finally breached yesterday morning, signaling to investors worldwide that interest rates still have much room left to run.

Inflation, a concern that has brewing for the past two years at the Fed, has gained momentum in the markets, driven and lead by the increase in crude oil that in turn has propelled most all commodity prices higher. Economic growth regardless of the Caterpillar put yesterday is still seen growing by 3.0% this year although Q1 growth likely at 2.0%.  The Q1 growth has been the lowest quarterly growth for the last four years. Presently in trading in the FF futures markets at the CME has the outlook for three more rate increases this year at 47%, up from 33% a few weeks ago. It is a volatile market, we have gotten many financial market participants speculating that the Federal Reserve, which is scheduled to raise the nation’s benchmark interest rate two more times this year, may have to take a more aggressive approach, but doubt that would occur, but the fact of increasing probabilities cannot be overlooked.

There has been a lot of media coverage on this break on the 10-year Treasury note, but with all the rhetoric and the reaction in the equity markets, it may be just too much of a reaction. Rates are going to increase if central banks talk about backing off from supporting markets with QEs and low rates. The ECB begins its meeting today and tomorrow. Comments from Mario Draghi recently cloud the picture about when the ECB will begin squeezing; he pointed out the EU economy, while improving relies more on exports than the US or China. This cannot be overlooked as the statement tomorrow and Draghi’s press conference has market consequences.

Mortgage rates tend to follow in the footsteps of the 10-year yield, and are also largely influenced by Fed decisions, so right now we are dealing with the possibility of rates moving higher at a quicker than expected pace.

Rate/Float Recommendation           

>>> Lock now – avoid any more risks

Mortgage rates tend to follow in the footsteps of the 10-year yield, and are also largely influenced by Fed decisions, so right now we are dealing with the possibility of rates moving higher at a quicker than expected pace. If you want to avoid the risk of paying more on your monthly payment, your best bet is likely to lock in a rate on a home purchase or refinance sooner rather than later. We have already seen mortgage rates rise considerably in 2018 and there now seems like there is still plenty of room left for them to run.

In a rising rate environment, the decision to lock or float becomes complicated. Obviously, if you know rates are rising, you want to lock in as soon as possible. However, the longer you lock, the higher your upfront costs. If you have yet to talk to a lender and want to get started towards ideal financing, give us a call or visit our website at Call The MoneyMan.