Daily Rate Summary
Tuesday, March 21st, 2017

Fed Hikes FF Rate and Treasuries Yields & Mortgage Rates Fall.
On Monday, Treasury yields and Mortgage Rates continue their rally post fed rate hike. This is now four days in a row of better pricing when compared to previous trading. On Monday, the 10 Yr. U.S. Treasury Note yielded 2.4607% and the 30 Yr. U.S. Treasury Bond yielded 3.0770%. Previous week, 30 Year Mortgages according to Freddie Mac were around 4.30% for conforming and 4.63% for Jumbo products.

Post Fed the whole U.S. Treasury yield curve is falling in response to last Wednesday's expected Federal Reserve rate move. Treasuries are being strongly bid up as bargain seekers look to lock in the higher yields that occurred in the run-up to the Fed meeting. The Bond market is acting unfazed by both the upcoming Debt Ceiling negotiations and Fed policymakers' communication post-fed meeting of future rate hikes (see dot plot).

U.S. 30 Yr. Bond Yield (Last five days)
(Chart courtesy of Zerohedge.com).

 

Weekly Mortgage Rates Analysis

As can be seen from Freddie Mac's Mortgage Market Survey, last week, 30 Yr. Fixed Mortgage rates for conforming loans hit 4.300% due to investor fears of Fed hawkishness but have now retreated due to a more dovish outlook post-Fed meeting.

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

What the Fed has now told the market is to expect a more 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 the pace of job creation will continue, with no economic recession, and that their forecast for future growth in the economy is above the inflation rate, and Federal Reserve Monetary policy stance continues to be accommodative (see dot plot above). Q1 GDP is due in two weeks.

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

If Q1 Gross Domestic Product is as weak as the Atlanta Federal Reserve's GDPnow forecast of 0.9% then the Fed may need to pare back its projected path of future rate increases from three to something less. This is what the market is wishing for with its strong bid for U.S. Treasuries post fed meeting. If inflation goes and stays above the Fed target of 2.00% and GDP growth slips to under 1.00% then we have a potential stag-flationary environment (rising inflation and low growth).

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 124'00 / 32nds; the 10 Year Note was up 8 basis points (bps) on the day, yielding 2.4607%. The US 30 Year Treasury Bond futures Contract for June settlement closed at a price of 149'00 / 32nds; the 30 Year Bond was up 18 basis points (bps) on the day, yielding 3.0770%. Mortgage Rates were lower on the day from the previous trading session.

 

Thanks to ZeroHedge.com, FreddieMac.com and Bloomberg.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.