Daily Rate Summary
Wednesday, December 13th, 2017

Mortgage Rates and Treasury Yields Rise.
On Tuesday, Treasury bond yields and Mortgage interest rates rose as investors rotate into hot trades instead of buying the safety trade. Stocks are again making a run to all-time highs on the averages.  The allure of fast gains on a frothy stock market outshines boring bonds.  Nervous investors mull economic signals and the impact of the Tax cut on economic growth potential.  Bond investors are looking at the possibility of lower-for-longer policy as an incentive to buy bonds.  Treasury Note stood at a yield of 2.4011% and the 30 Yr. U.S. Treasury Bond is yielding 2.7762%.  30 Year Mortgages according to Freddie Mac were around 3.94% for conforming and 3.72% for Jumbo products.

 

The Federal Reserve is meeting and given current 97% probabilities, they will announce a 0.25% percentage point increase in the Federal Funds Rate taking it to 1.50% later today.  This much is known, what is unknown is who will blink first the Fed or the Bond Market?  According to the Fed’s own Dot Plot the plan is for 3 or 4 additional rate hikes in 2018 taking the rate to 2.25% or 2.50% by the end of the year.  The Rate Spread in the futures market tells a different story (see the chart below) with about 46 basis points (less than 2 rate hikes) priced in at the moment.                                                                  

2018 Rate Spread – Market Odds of # of Rate Hikes Priced In.
(Chart courtesy of Zerohedge.com).

Finally, according to zerohedge.com; “Hours ahead of today's ‘historic’ final Yellen FOMC rate hike, the CPI disappointed at 1.70% with expectations of 1.80% and traders are bidding bonds and bullion while dumping the dollar...The odds of two rate hikes next year just tumbled.  Gold jumped and the dollar dumped.  And Treasury yields are tumbling.”

US Treasury 2s30s Spread moves wider by 6 bps to +95 bps.
(Chart courtesy of Zerohedge.com).


30 Year U.S. Treasury Bond Yield Testing range back below 2.80%.
(Chart courtesy of Zerohedge.com).

The 30 Year U.S. Treasury Bond has now tested the lows and returned to 2.80% and back again to the starting point since the market moving comments from ECB President, Mario Draghi regarding the tapering of bond purchases in late-2018.

10 Year U.S. Treasury Note Yield rises to 2.42% then falls.
(Chart courtesy of Zerohedge.com).

The 10 Year U.S. Treasury Note has tested the lows and is moving back to the upper trading range in bond yields.  We await whether that gap at 2.05% will get filled in coming months.  If so, we will get another run at historically low rates before the final blow-off in Credit Markets sends Mortgage Interest rates up for good.

10 Year U.S. Treasury Note Yield Longer-term View back above 2.40% again.
(Chart courtesy of Zerohedge.com).

 

 

 

The above Chart does suggest that a constructive set-up is forming in the 10 Year Treasury Note with the potential to push the yield to around 2.00% over the next month.  It is crucial that Mortgage Rates stay at or below 4.00% or demand for mortgage loans will dry up.  The window of opportunity for borrowers seeking mortgage refinancing & home purchases is still open for now.

December Fed Funds Futures Rate Hike Odds Rise above 99%.
(Chart courtesy of Zerohedge.com).

 

 

As can be seen from Freddie Mac’s Mortgage Market Survey, last week, 30 Yr. Fixed Mortgage rates for conforming loans hit 3.94% higher by 4 basis points (bps) from the previous week.

 

Treasury Prices Fall and Yields Rise for U.S. 10 Yr. and 30 Yr. Treasuries.
At the Chicago Board of Trade (CBOT): the US 10 Year Treasury Note futures Contract for March settlement closed at a price of 124’04 / 32nds; the 10 Year Note was down 4.5 basis points (bps) on the day, yielding 2.4011%.  The US 30 Year Treasury Bond futures Contract for March settlement closed at a price of 152’21 / 32nds; the 30 Year Bond was down 12 basis points (bps) on the day, yielding 2.7762%.  Mortgage Rates are off their 2017 lows and are higher by 4 basis points (bps) from the previous Freddie Mac Survey last week.

 

Thanks to ZeroHedge.com, B of A Merrill Lynch Global Research, Goldman Sachs, Bloomberg, and FreddieMac.com for Charts and Graphics.

---

Disclaimer: The Information & content in this message is solely the opinion of the author and believed to be from reliable sources. Charts and tables contained herein were taken from other sources and a best effort was attempted by the author to give attribution where possible. None of this material should be construed as fact, and is not intended for use by reader as investment advice or relied upon for making financial decisions.