Daily Rate Summary
Friday, March 16th, 2018

Mortgage Rates and Treasury Yields Rise Slightly.
On Thursday, Treasury bond yields and Mortgage interest rates rose slightly as investors await data on wage and price increases as a gauge to underlying direction of inflation in the economy and its impact on bonds.  Though Stocks have fallen some, prices are still lofty just a couple of percent off all-time-highs in indexes.  Nervous investors mull economic signals and the impact of the Tax cut on future growth potential & the goldilocks economy. The 10 Yr. Treasury Note stood at a yield of 2.8280% and the 30 Yr. U.S. Treasury Bond yielding 3.0584%.  30 Year Mortgages according to Freddie Mac were around 4.44% for conforming and 5.02% for Jumbo products.

 

According to Zerohedge.com, “Following a disappointing tumble in January, US Industrial Production spiked 1.1% MoM in February (well above all analyst expectations). This is the 2nd biggest MoM spike in production in 8 years.

Despite declining global economic data and weakness across US-specific data, Industrial production jumped 1.1% in February - the second biggest monthly surge since May 2010.”

U.S. Industrial Production Reaches 7-Year High (YoY).
Source: Board of Governors Federal Reserve System.
(Chart courtesy of Zerohedge.com).





As the Federal Reserve report explains, “U.S. Industrial production rose 1.1 percent in February following a decline of 0.3 percent in January. Manufacturing production increased 1.2 percent in February, its largest gain since October. Mining output jumped 4.3 percent, mostly reflecting strong gains in oil and gas extraction. The index for utilities fell 4.7 percent, as warmer-than-normal temperatures last month reduced the demand for heating. At 108.2 percent of its 2012 average, total industrial production in February was 4.4 percent higher than it was a year earlier."



Importantly, University of Michigan notes that short-term inflation expectations also jumped to 2.9% - the highest since March 2015.  Interest rates were expected to increase by the largest proportion since 2004. These trends have prompted consumers to more favorably cite buying as well as borrowing in advance of those expected increases. While this may be the first tentative step toward an inflation psychology, this transformation requires continuously increasing incomes to support rising spending.”

30 Yr. Mortgage Rates (Inv) vs. Pending Home Sales Index.
(Chart courtesy of Zerohedge.com).



U.S. 30 Year Note Yield above 3.16% briefly then back below 3.06%.
(Chart courtesy of Zerohedge.com).







U. S. 10 Year Note Yield below 2.80% briefly.
(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 year.  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.

Market-Implied # of Rate-Hikes In 2018 above 2.94 rate moves.
(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 4.44% lower by 2 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 June settlement closed at a price of 120’16 / 32nds; the 10 Year Note was down 1.5 basis points (bps) on the day, yielding 2.8280%.  The US 30 Year Treasury Bond futures Contract for June settlement closed at a price of 144’26 / 32nds; the 30 Year Bond was down 2 basis points (bps) on the day, yielding 3.0584%.  Mortgage Rates are near their 2018 highs and are lower by 2 basis points (bps) from the previous Freddie Mac Survey last week.

 

Thanks to ZeroHedge.com, Board of Governors Federal Reserve, University of Michigan, B of A, National Association of Realtors (NAR), Mortgage Bankers Association, 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.