Daily Rate Summary
Monday, January 22nd, 2018

Mortgage Rates and Treasury Yields Rise.
On Friday, Treasury bond yields and Mortgage interest rates rose strongly as Bond investors are re-assessing curve flattening trades that they put on earlier.  Stocks are still hot! and 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.  10 Yr. Treasury Note stood at a yield of 2.6592% and the 30 Yr. U.S. Treasury Bond is yielding 2.9331%.  30 Year Mortgages according to Freddie Mac were around 4.04% for conforming and 4.25% for Jumbo products.

 

The U.S. 10 Year note has reached the critical level of 2.62% again and as in previous episodes the yield level reached was a strong buying entry-point.  According to Zerohedge.com, “The Fed is now encountering long end resistance in its “rate hikes” far, far less in nominal terms than it did ten years before. They are pushing up short rates into what’s really a much lower ceiling. This is profound, and a challenge FOMC officials are well-aware could derail their efforts (though they have had to come up with increasingly convoluted and often ridiculous reasons for it). The long end is once more confronting the Fed’s assumptions behinds its “rate hikes” this time at less than 3%, which translates into an economic growth paradigm unchanged from 2008 when all that emergency monetary experimentation really began.”

U.S. 10 Year Note Yield at Critical Level of 2.6592%.
(Chart courtesy of Zerohedge.com).

Adding, “That doesn’t mean the 10s or 30s won’t move. They do, and did. What it really means is that there isn’t a meaningful difference where the yield curve flattens at 2.50%, 2.62%, or perhaps even as much as 3.00% on the 10s. At some point, unless something in the monetary system really does change, Jerome Powell (I’m assuming) is going to find himself with dots well above the long end.”


30 Year U.S. Treasury Bond Yield Testing range back above 2.85%.
(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 Yr. U.S. Treasury Note Yield Short-term View back around 2.62% again.
(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.

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.

March Fed Funds Futures Rate Hike Odds Rise above 72%.
(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 4.04% higher by 5 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 122’09 / 32nds; the 10 Year Note was down 5.5 basis points (bps) on the day, yielding 2.6592%.  The US 30 Year Treasury Bond futures Contract for March settlement closed at a price of 149’00 / 32nds; the 30 Year Bond was down 14 basis points (bps) on the day, yielding 2.9331%.  Mortgage Rates are off their 2017 lows and are higher by 5 basis points (bps) from the previous Freddie Mac Survey last week.

 

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

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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.