Last week mortgage rates rose in response to improving economic data and hawkish posturing from the Fed. Freddie Mac’s Primary Mortgage Market Survey announced that the average rate on a 30-year fixed-rate mortgage was 3.58% with 0.6 points, up from 3.57% with 0.6 points the week prior. However, the survey is published on Thursday, and most of the responses are collected in the early part of the week. Due to this, the Survey doesn’t reflect the bond sell-off that accelerated on Wednesday and Thursday. At the beginning of last week, yields on 10-year Treasuries were around 1.74%, rising as high as 1.88% on Thursday morning. The bulk of the increase occurred on Wednesday in response to the Minutes from the last Fed meeting – the largest single-day rise in 10-year rates in 2016. Yields have since retreated a little bit, with 10-years around 1.84% right now. Mortgage backed securities sold off along with Treasuries, causing yields and mortgage rates to rise. Rates are still quite low, but have risen since hitting three-year lows just two weeks ago.
Click here to get today’s latest mortgage rates.
Today’s economic data:
There’s relatively little economic data today. We get some relatively important releases this week, including April Durable Goods Orders on Thursday and the second estimate of first quarter GDP on Friday, but the next economic release of major importance is the May employment report which comes out on June 3rd. A strong report could potentially clear the way for a June rate hike, or at the very least, increase the market expectation of a May hike, which would in and of itself cause rates to rise. Anyway, we have one piece of data today:
- The May Markit PMI Manufacturing Index Flash missed expectations, showing a reading of 50.5 compared to expectations of a reading of 51. This is down slightly from April’s reading of 50.8. Readings above 50 show growth, while sub-50 readings show weakness. Last week’s manufacturing reports from the Philly Fed and the NY Fed also showed relative weakness. Manufacturing has showed some signs of life as oil prices rebounded, but appreciation in the dollar could balance out any gain from rising energy prices. The manufacturing sector continues to muddle along, as it has done for at least a year.
Although this report probably isn’t dramatically impacting the markets this morning, it’s one more data point in a trend of mediocrity for manufacturing.
The week that was:
Last week was all about the Fed jawboning rates higher, culminating in the largest single day rise in 10-year Treasury yields this year following the release of the Minutes from the last Fed meeting on Wednesday. The FOMC Minutes were not unequivocally hawkish, with some officials noting that there were downside risk in raising rates, that there are still global headwinds (the Brexit vote on June 23rd, and Chinese currency issues to name two), and the statement stressed that, as always, decisions would be data dependent.
All that said, it was likely this part of the Minutes that caused the markets to take more seriously the idea of a June hike:
“Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee’s 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June.”
The minutes go on to say that there isn’t a clear agreement as to what conditions would need to be met to hike in June, and whether or not the data will be clear enough to justify a hike. Still, the Minutes, along with a lot of hawkish Fedspeak last week was sufficient to push 10-year yields 10-15 basis points higher. As recently as two weeks ago the implied probability of a rate hike according to prices of Fed Fund futures was as low as 2%. This morning the probability is 26%, but was as high as 30% at the end of last week.
To show how sentiment has shifted among Fed members, Boston Fed President Eric Rosengren, generally a dove, remarked in an interview that:
“I want to be sensitive to how the data comes in, but I would say that most of the conditions that were laid out in the minutes, as of right now, seem to be . . . on the verge of broadly being met”
The Fed is trying to avoid shocking markets, which had entirely discounted the idea of a June rate hike. I suspect that there will be no hike at the June meeting, but the Fed will strongly signal that a rate hike is imminent in July. The June meeting happens just before Britain can vote to lead the EU, and while polls show that the “remain” camp has gained ground lately, polls remain very close. If the Fed hikes in June, they risk compounding market turmoil if Britain votes to leave the EU. If they wait til June, they have the benefit of seeing how the vote turned out, and whether or not it caused significant turmoil.
Don’t wait for rates to rise. Start your mortgage process now.
What’s the takeaway for rates this week?:
I’ve been warning for weeks that rates could potentially change in a hurry, and that I thought it was more likely than not that rates rise than fall, if for not other reason than that rates were close to their historical lower bounds, and that the Fed has made clear that it wants to hike. Last week we saw a mini-spike in rates. Most of this week’s data is somewhat second-tier, but it looks like there could be a lot of corporate bond issuance this week, which could cause yields to rise if the market needs to make concessions for supply. Additionally, we hear from Janet Yellen on Friday, and if she comes across as being hawkish, we could see another small spike, akin to what we saw last Wednesday. Looking a little further out, the May employment numbers come on out Friday June 3rd, and if they come in strong, the path will to a rate hike will be a little more clear (particularly if wages rise). So there are some risks ahead.
If you’re looking to refinance, you missed the lowest rates of the year, but rates are still very favorable, historically. If you already have a mortgage, you may be able to save money on your monthly payments or reduce the length of your loan term. It’s certainly worth a phone call. If you’re looking for a new home, now is a good time to lock in a low rate for a very long time.
Don’t wait for rates to rise. Start your mortgage process now.
Notable events this week:
Monday:
- PMI Manufacturing Index Flash
- Treasury auctions
- Fedspeak
Tuesday:
- New Home Sales
- Richmond Fed Manufacturing Index
- Treasury auctions
Wednesday:
- International Trade in Goods
- EIA Petroleum Status report
- Treasury auctions
Thursday:
- Durable Goods Orders
- Weekly Jobless Claims
- Treasury auctions
- Fedspeak
Friday:
- GDP
- Consumer Sentiment
- Janet Yellen speaks
from Total Mortgage Underwritings Blog http://ift.tt/1OIZnlF
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