Last week mortgage rates rose. The increase came about when bonds sold off rapidly on Tuesday. The sell-off was prompted largely by reports that the European Central Bank would slow the stimulus it is providing to the European economy (a report which was later denied). 10-Year Treasury yields started the week around 1.60%, spiked by about 10 basis points on Tuesday and Wednesday, and ended the week around 1.72% on Friday. Mortgage backed securities moved with Treasuries (as they typically do), and rates rose as well. Bonds rallied during the summer following the Brexit vote in late June, leading rates to come close to record lows. The sell-off that has occurred over the past weeks has yields at pre-Brexit levels, and if the Fed follows through with plans to hike, we should see yields continue to increase, and mortgage rates will follow.
Rates are still very favorable from a historical perspective, but appear to be rising. If you are looking to refinance your current mortgage, I would suggest moving with some urgency. I doubt that we see rates spike in a short time frame – a gradual rise seems more likely, but you never know what might happen.
Click here to get today’s latest mortgage rates.
The week that was:
Coming into the week, I figured that the main influence on the market would be the September jobs report. That prediction turned out to be wrong. As noted above, things shifted when a report surfaced that the ECB is “building a tapering consensus” as the end of its asset-purchase program nears. The ECB is presently purchasing $80 billion in assets per month in an effort to prop up the European economy. Although the report was later denied by an ECB spokesman, the market did not bounce back. It almost seems as though the market was looking for an excuse to sell off.
Although it is not an apples-to-apples comparison, it is worth noting that when the Fed announced that it was going to taper its quantitative easing program by scaling back bond purchases in 2013 bond yields surged, and mortgage rates spiked by a full point or so over the course of two months. I’m not suggesting that we’ll see such an occurrence again, but one should be aware of the extreme market swings that can occur as a result of central bank actions.
The jobs report ended up being a positive from a mortgage rate perspective. 156k jobs were added in September, which was below expectations, and average hourly earnings held steady at 0.2% growth. The last point is important, because it looks like inflation is still being held in check, which means that the pressure is off the Fed to hike rates at its next meeting, which occurs just days before the election (November was likely always off the table due to the election unless we saw some really hot inflation numbers). The implied probability of a hike in December based upon Fed Fund futures prices is a little over 70%.
On balance, the rest of the domestic economic data was better-than-anticipated. Barring a downturn, the hawks on the Fed should have all the ammunition they need to justify the December hike.
The rate outlook:
The markets are open today, but many people are off for Columbus Day, so I think that any market movement we see today will likely be fairly subdued. We don’t see much domestic economic data this week. We do hear from a series of Fed members, and the minutes from the last FOMC meeting come out on Wednesday. We might get some additional insight there, but I don’t think it will move markets all that much.
I’ll guess that the main influences on the market are going to be external factors again this week. The UK is still trying to figure out how to implement/deal with the Brexit, and nobody’s really sure what will happen there. It doesn’t look like Deutsche Bank is any closer to an agreement with the Department of Justice over mortgage backed security sales. The bank faces a $14 billion fine, and there are concerns about its capital. This morning Putin said Russia is going to join an OPEC measure to limit oil production, and oil prices are rising. I’m not going to attempt to guess how any of this will play out, but these are just a few of the ongoing stories that could move rates this week.
Rates are still quite favorable, just not as favorable as they were a few weeks back. It certainly looks like rates are beginning to rise, and if I were looking for a mortgage, I would keep this in mind as I shop for rates.
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from Total Mortgage Underwritings Blog http://ift.tt/2dqKc56
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