When Will The Mortgage Market Actually Care About Rising Rates?

Posted To: Mortgage Rate Watch

There’s an obvious trend toward higher rates as far as Treasury yields are concerned. This goes all the way back to August. Treasury yields and mortgage rates historically correlate quite well. But mortgage rates have almost completely ignored that correlation recently. In fact, most of the 2nd half of 2020 saw mortgage rates fall while Treasury yields continued higher. The chart above doesn’t tell the whole story because it uses a separate y-axis for each line. Here’s the same time frame with mortgage rates and 10yr yields on the same axis: That still doesn’t tell us much although we can certainly see different patterns. Here’s another look at the same two rates on the same axis, but this time we’re charting the CHANGE since Jan 1, 2020. This one probably tells the story better than the rest…(read more)

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When Will The Mortgage Market Actually Care About Rising Rates?
When Will The Mortgage Market Actually Care About Rising Rates?

MBS Day Ahead: Decision Time For Bonds as Holiday Weekend Approaches

Posted To: MBS Commentary

For the most part, this week has been "so far, so good" through Wednesday. Yields have pushed back nicely after topping out at the highest levels in almost a year on Monday. Such moves can either be a simple profit-taking measure for traders betting on higher rates or a bonafide reversal in a rising rate trend. We're hoping for the latter, at least when it concerns the short-term trend that carried 10yr yields from 1.0% to 1.19% in the past 2 weeks. The days leading up to a 3-day weekend can be a poor reflection of prevailing bond market sentiment. Trading is already getting quiet with Asian markets closed for Lunar New Year and very little by way of econ data on the domestic calendar. Long story short, we may now be waiting on next week to confirm this week's friendly bounce…(read more)

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MBS Day Ahead: Decision Time For Bonds as Holiday Weekend Approaches
MBS Day Ahead: Decision Time For Bonds as Holiday Weekend Approaches

MBS RECAP: CPI and 10yr Auction Make a Case For a Near-Term Rate Ceiling

Posted To: MBS Commentary

CPI and 10yr Auction Make a Case For a Near-Term Rate Ceiling NOTE: charts look weak this morning despite strong MBS due to THE ROLL. See the 2nd half of the Day Ahead for another useful chart. Bonds started strong thanks to a weak CPI report. Actually bonds were ready to sell today, but CPI reversed the losses to the tune of roughly 3bps in 10yr yields. The 10yr Treasury auction–which might have been today's big market mover if not for CPI–posted unobjectionable stats and bonds went on to hold the day's gains through the 3pm close. With these events out of the way, the ability to hold in the 1.13% range is a vote in favor of a near-term ceiling at the recent highs of 1.19+. MBS underperformed, but rates nonetheless fell to their lowest levels in more than a week. Econ Data / Events…(read more)

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MBS RECAP: CPI and 10yr Auction Make a Case For a Near-Term Rate Ceiling
MBS RECAP: CPI and 10yr Auction Make a Case For a Near-Term Rate Ceiling

MBS Day Ahead: Strong Start Thanks to Weak CPI (And a Chart to Explain "The Roll")

Posted To: MBS Commentary

Contrary to some of the wholesale price pressures suggested by recent reports (like the ISM manufacturing "prices paid" component, which rose to the highest levels since 2011 last week), consumer-level inflation is declining faster than expected. Bonds have been concerned about the potential inflation impact of the Fed's monetary policy bazooka, not to mention the general economic recovery and stock market "wealth effect." But the data is not showing it–at least not for January. Today's 1.4% core CPI number is well short of the 2.0-2.5% range targeted by the Fed. Bonds like that! The afternoon's 10yr Treasury auction will be the next big flashpoint for bonds, unless the CPI reaction steals the show. What does that mean, exactly? From time to time, the bond market…(read more)

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MBS Day Ahead: Strong Start Thanks to Weak CPI (And a Chart to Explain "The Roll")
MBS Day Ahead: Strong Start Thanks to Weak CPI (And a Chart to Explain "The Roll")

Mortgage Rates Roughly Unchanged From Last Week

Posted To: Mortgage Rate Watch

Mortgage rates have been extremely stable given their proximity to all-time lows. Past precedent suggests one of two things when rates set records: a slow grind lower with additional periodic records or a rather abrupt bounce back in the other direction. The 2nd half of 2020 was definitely characterized by the aforementioned slow grind with at least 20 separate days resulting in record low rates by December 21st. Since then, rates have gone no lower, but apart from a brief stint in early January, they really haven’t gone appreciably higher either. This is made all the more impressive by the fact that the broader bond market is indeed telling mortgage rates to rise. Specifically, 10yr Treasury yields–a perennial travel companion for 30yr fixed mortgage rates–have been rising consistently since…(read more)

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Mortgage Rates Roughly Unchanged From Last Week
Mortgage Rates Roughly Unchanged From Last Week

MBS RECAP: Locking vs Floating After Underwhelming "Rally Day."

Posted To: MBS Commentary

Locking vs Floating After Underwhelming "Rally Day." The recent losing streak in the bond market made it increasingly likely that we'd see a win this week. Ideally, it would have aligned with a strong response to Wednesday's 10yr auction, but instead, we got a halfhearted version on Tuesday. While this is technically a tactical cue to float for the most risk tolerant clients, that's an aggressive strategy until we see how the market reacts to the 10yr auction. Either way, the bigger picture rising rate trend remains easily intact. Econ Data / Events Fed MBS Buying 10am, 1130am, 1pm Market Movement Recap 08:31 AM Bonds improved overnight as stocks remained in check and European bonds joined in the short-covering trade. A Spanish bond auction (of all the crazy things) was…(read more)

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MBS RECAP: Locking vs Floating After Underwhelming "Rally Day."
MBS RECAP: Locking vs Floating After Underwhelming "Rally Day."

MBS Day Ahead: Is This The Bounce We've Been Looking For?

Posted To: MBS Commentary

After 8 straight days with yields closing higher than they opened, bonds are starting out in stronger territory with a chance to reverse the curse. The longer those losing streaks are, the more certain we can be of seeing a corrective green day. Today has every possibility of becoming that day. In fact, as of right now, it already is. But much like that old Jedi dude and the droids, this may not be the bounce we've been looking for. While a rally today would indeed fulfill the increasingly dire need for a technical correction in bonds, the rally would be more meaningful if it coincided with tomorrow's 10yr Treasury auction as opposed to today's 3yr. Why? 3yr Treasuries are a fundamentally different part of the bond market–one with far less bearing on mortgages, and simply not very…(read more)

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MBS Day Ahead: Is This The Bounce We've Been Looking For?
MBS Day Ahead: Is This The Bounce We've Been Looking For?

MBS RECAP: Reasons For Both Hope and Fear In Today's Trading

Posted To: MBS Commentary

Reasons For Both Hope and Fear In Today's Trading Bonds have been in a consistent trend leading toward higher rates in the short term and that trend falls inside a similarly consistent up-trend in the bigger picture. On a hopeful note, today's early strength suggests the bigger-picture trend could offer a supportive bounce in the first half of the week. On a cautionary note, not only did bonds fail to gain much ground today, the buying was largely fueled by short covering (i.e. traders booking profits after having previously bet on rising rates). Econ Data / Events Fed MBS Buying 10am, 1130am, 1pm Market Movement Recap 08:26 AM Bonds were expected moderately weaker after an orderly sell-off overnight. Stimulus, stocks, and auction trepidation are easy to blame for the move. 10yr is…(read more)

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MBS RECAP: Reasons For Both Hope and Fear In Today's Trading
MBS RECAP: Reasons For Both Hope and Fear In Today's Trading

MBS Week Ahead: Friendly Bounce Basically Guaranteed, But Size and Duration Remain to be Seen

Posted To: MBS Commentary

There were spooky stories told around bond market campfires late last week. The monster in those stories was the looming specter of the Treasury auction cycle in the week ahead. Another slate of record supply… and on a week where congress made real progress on the $1.9 trillion covid relief bill (something that only makes Treasury supply scarier). Add record high stock prices to the mix and it promised to be a challenging week ahead for bonds. So far, the stories seem to have merit as 10yr yields hit the highest levels in almost a year overnight. On the bright side, the losses have been minimal, and there's a solid chance at a corrective bounce at some point in the next 3 days. One of the reasons for the nature of the auction cycle. Traders tend to be better sellers of bonds heading into…(read more)

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MBS Week Ahead: Friendly Bounce Basically Guaranteed, But Size and Duration Remain to be Seen
MBS Week Ahead: Friendly Bounce Basically Guaranteed, But Size and Duration Remain to be Seen

MBS RECAP: Treasury Slide Transcends NFP; MBS Outperform

Posted To: MBS Commentary

Treasury Slide Transcends NFP; MBS Outperform Bond yields rose overnight–well before NFP came out–following the senate's passage of a budget resolution that clears the way for (eventual) passage of the $1.9 trillion stimulus package. NFP helped (then hurt, then helped again), but bonds ultimately gave in to rising rate pressures as traders began to build in a concession for next week's Treasury auction cycle. 10yr yields were up roughly 3bps on the day at the close, but MBS managed to hold roughly unchanged (further adding emphasis to the Treasury auction trepidation and budget related concerns as a bond market mover). Econ Data / Events Fed MBS Buying 10am, 1130am, 1pm Nonfarm Payrolls….. 49k vs 50k f'cast, -227k prev Unemployment %…. 6.3 vs 6.7 f'cast, 6.7 prev Avg work…(read more)

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MBS RECAP: Treasury Slide Transcends NFP; MBS Outperform
MBS RECAP: Treasury Slide Transcends NFP; MBS Outperform