Treasuries continue to sell off, and mortgage backed securities are following suit. As a result, mortgage rates are up. Since May 13, yields on 10-year Treasuries have jumped from 1.70% to about 1.87% this morning. Yields have increased as the market has recalibrated its expectations of the timing of a rate hike from the Fed. Last week the minutes from the last Fed meeting were published, and they were much more hawkish than anticipated. All of the recent Fedspeak has been pretty hawkish as well. It looks like the Fed wants the market to price in a rate hike (at least partially) before they actually go ahead and hike, and they’ve been pretty successful in their efforts. In addition to rising interest rates, Fed Fund futures prices have shifted pretty significantly. As recently as two weeks ago, futures prices showed an implied 2% probability of a hike in June. This morning the implied probability is up to 38%. In the absence of significant new data, look for rates to hold steady as head into the holiday weekend.
Click here to get today’s latest mortgage rates.
Recent economic data:
Let’s dive right in:
- New home sales spiked in April. Expectations were for a seasonally adjusted annual rate of 523k, and the print came in at 619k, the biggest month-over-month gain since 1992. February and March’s numbers were revised up by 39k. Prices jumped by 7.8%. New home sales are volatile from month-to-month, but there’s no way to interpret this except as a big positive for housing. We’ll see what the next handful of indicators show.
- The Richmond Fed Manufacturing Index for May came in at -1, down from a reading of 14 in April (positive numbers indicate growth while negatives show contraction). The Philly Fed and Empire State Manufacturing reports from last week also showed contraction. Manufacturing is struggling despite the rebound in oil prices. If the dollar continues to strengthen we could see continued weakness as exports would suffer.
- The International trade in goods report for April showed a larger trade deficit than in March. The balance of trade (for goods) came in at -$57.5 billion, up from -$55.6b in March. The impact this will have on second quarter GDP remains to be seen.
- The EIA’s Petroleum Status Report showed that inventories of crude oil and distillates fell, while gasoline inventories were up. Oil prices continue to rise.
Miscellany:
Not much has changed since I last wrote about mortgage rates on Monday. Here are some quick hits on items that may be of importance in the coming weeks or months:
- We approach the British referendum on whether or not to remain in the EU. The vote will be held on June 23rd. The “remain” camp is gaining in the polls. Presently, remain is leading leave 47%-41%. The Bloomberg tracker I linked to estimates there is an 18% chance of a Brexit. I’m still of a mind that the possibility of a Brexit on the 23rd will keep the Fed from hiking during its June meeting on the 14th and 15th. They could just as easily hike in July when the risk of a Brexit is over. I find it hard to believe that inflation, which has been close to non-existent for several years, is going to get out of control over the course of a month.
- Speaking of the Fed, St. Louis Fed President James Bullard spoke yesterday and concurred with pretty much everything we’ve heard from the Fed of late. Essentially he said not to rule out a June hike, but to bear in mind that monetary policy is data dependent. Meanwhile, Tim Duy notes that labor data has been moving sideways, that there still may be labor slack, and that hiking now might be a bad move. Janet Yellen speaks on Friday, curiously right before the markets close. A lot of market participants will likely have started vacation early. I anticipate that Yellen will probably echo recent Fedspeak, and that nothing will happen. However, if she says something unexpected, we could see some exaggerated movement resulting from a lack of liquidity.
- It looks like Paul Ryan may be ready to endorse Donald Drumpf as his party’s nominee. Meanwhile violent protests broke out outside of a Drumpf rally last night in New Mexico, and California is preparing for the same. Drumpf has pulled very close to Clinton in many polls. No matter your politics, I think most people could agree that there is almost no telling what Drumpf might do if elected president (bear in mind this is a guy who recently suggested the U.S. should partially default on its debts). I am very curious to see what the market reaction would be if the polls were to indicate that he might win. My guess is the reaction would likely not be positive.
- Speaking of Drumpf, here’s an excellent profile on Drumpf’s political strategist Paul Manafort from Franklin Foer on Slate. Long story short, the guy has worked for a lot of dictators and despots.
- Oil keeps rallying as production falls. I do wonder at what point oil will rally enough to bring some of the shuttered shale oil rigs in the U.S. back on line. At some point, you would think an equilibrium will be met and oil will cease to rally. We’ll see.
Don’t wait for rates to rise. Start your mortgage process now.
What’s the takeaway for rates this week?:
Rates are up, but are still generally favorable. If you were considering refinancing, I think it makes sense to make a phone call sooner rather than later. I don’t see a situation where rates dip considerably in the near future, particularly with the Fed making efforts to jawbone rates higher before they hike. If you’re buying a home, you can lock in a rate that is very low from a historical perspective.
Could I be wrong? Certainly. You could easily concoct a scenario where rates fall. I just think it is more probable than not that rates will rise. Here is something to consider: if you were to get a new mortgage today, and there is some nightmare scenario that causes rates to dip substantially (perhaps a new war, a renewed recession in the United States, some other source of global turmoil, etc.), you could always refinance. If you choose to sit on your hands and rates continue to rise, you are out of luck.
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/1s9Ssgu
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