Daily Rate Summary

Fed Hikes FF Rate and Treasuries Yields & Mortgage Rates Fall.

On Wednesday, the Federal Reserve increased the Fed Funds Rate by 0.25% bps to 1.00% as was expected and U.S. Treasury prices and Mortgage rates fell as a bond buying rally commenced. Starting the moment the press release hit the wires Wednesday, yields fell dramatically for 10 Yr. & 30 Yr. Treasuries, as well as Mortgage Rates, when compared to Tuesday's trading range. On Wednesday, the 10 Yr. U.S. Treasury Note yielded 2.4930% and the 30 Yr. U.S. Treasury Bond yielded 3.1071%. This week, 30 Year Mortgages according to Freddie Mac were around 4.21% for conforming and 4.69% for Jumbo products.

While the whole U.S. Treasury yield curve fell in response to Wednesday's expected Federal Reserve rate move when it was announced; a series future Interest Rates hikes (although gradual) are baked into the cake. Fed policymakers' projections (see dot plot) could suggest four rate hikes this year instead of the three projected in December.

U.S. 10 Yr. Note Yield (Dec 2015 to Present)
(Chart courtesy of Zerohedge.com).

As can be seen from the Chart the U.S. 10 Yr. Note is sitting at a critical place right now with a yield of 2.500%. Because mortgage rates are tied most closely with the U.S. 10 Yr. Treasury Note, which way this goes will be important for borrowers seeking 30 Yr. Fixed Rate mortgages which now stand at 4.21%.

Implied Fed Funds Target Rate
(Chart courtesy of Zerohedge.com).

What the Fed has now told the market is to expect a gradual increase in the Fed Funds Target Rate to 2.00% by the end of 2018 and for the longer term (beyond 2020) 3.00% eventually. They are assuming that no economic recession will happen between then and now (even with the Atlanta GDPnow Q1 2017 GDP forecast having fallen to just 0.9%) to interrupt the narrative that economic recovery is firmly in place (se3e dot plot above). This will be a tall order. We could easily see this plan derailed by events.

Fed Funds Target Rate: A Historical Perspective.
(Chart courtesy of Zerohedge.com).

With all the hand wringing about the Fed raising the Fed Funds Target Rate by a 0.25% yesterday, it is always useful to see where we are from a historical perspective. As can be seen from the chart above, US GDP Growth is in secular decline over many decades. It certainly appears that Monetary Policy is having diminishing effectiveness in stimulating US Economic activity at the margin and after having been at the 'zero bound' condition for many years the Fed has decided to "stop digging" and find another way to get out of the hole we are in. We are setting up for a breakout in interest rates (normalization), because as Albert Einstein has so eloquently said, "Insanity is doing the same thing over and over but expecting a different outcome." The Federal Reserve has finally awakened and realized that ZIRP and NIRP don't work and haven't been working over the last 8 years.

Treasury Prices Rise and Yields Fall for U.S. 10 Yr. and 30 Yr. Treasuries.

On the Chicago Board of Trade (CBOT): the US 10 Year Treasury Note futures Contract for June settlement closed at a price of 123'23.5 / 32nds; the 10 Year Note was up 27.5 basis points (bps) on the day, yielding 2.4930%. The US 30 Year Treasury Bond futures Contract for June settlement closed at a price of 148'09 / 32nds; the 30 Year Bond was up 1'14 basis points (bps) on the day, yielding 3.1071%. Mortgage Rates were much lower on the day from the previous trading session.

 

Thanks to ZeroHedge.com and Bloomberg.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.

iPad for Mortgage Rates

Apply for a loan

ERATE iPhone App - iTunes
ERATE is a BBB Accredited Mortgage Rate Publisher in Santa Clara, CA ERATE is rated A Plus by Better Business Bureau - BBB
Equal Housing Opportunity