Daily Rate Summary
Friday, May 25th, 2018

Mortgage Rates and Treasury Yields Fall.
On Thursday, Treasury bond yields and Mortgage interest rates fell as the programmed investor selling of bonds reverses and once again the U.S. 10-Year Note falls below the psychological 3.00% yield level even though the odds for a June Rate Hike in the Federal Funds Rate climb to 97% probability.  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 aging economic recovery. The 10 Yr. Treasury Note stood at a yield of 2.978% and the 30 Yr. U.S. Treasury Bond yielding 3.125%.  30 Year Mortgages according to Freddie Mac were around 4.66% for conforming and 4.70% for Jumbo products.

Key Economic Releases for the Week of May 21st – May 25th.
Source: BEA, BLS, Census Bureau, Federal Reserve, ISM, U of Michigan, IHS Markit, Bloomberg and Barclays Research.
(Chart courtesy of Zerohedge.com).

 

According to zerohedge.com, “Preliminary data for May's University of Michigan Consumer Sentiment survey showed a tumble in current conditions (and small rise in hope); but the final data showed both sliding notably intra-month with the headline sentiment index at its lowest since January.”

“The Report notes, Headline Sentiment slipped from 98.8 prelim to 98.0 final from 98.8 in April.  Current Conditions slipped from 113.3 prelim to 111.8 final from 114.9 in April.  Expectations slipped from 89.5 prelim to 89.1 final from 88.4 in April.”

“As Bloomberg notes, consumer sentiment in the U.S. settled back to a four-month low in May amid less-favorable buying conditions for homes and big-ticket items, according to a University of Michigan report Friday.  Notably, consumers anticipated income gains of 1.6 percent, down from 2.2 percent in April and 2 percent last year,” according to Bloomberg said via Zerohedge.com.

U.S. 30 Year Note Yield below 3.10% again.
(Chart courtesy of Zerohedge.com).






U.S. 10 Year Note Yield back below 3.00% 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 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 Probability of a June Rate Hike rises to 97.0%.
(Chart courtesy of Zerohedge.com).

 

As Deutsche Bank (DB's) Craig Nicol adds, “In terms of the Fed on Wednesday, the consensus is for no change in policy which is a view also shared by the market with futures pricing implying odds of just 5% for a hike. That said market pricing for 4 rate hikes this year (i.e. a further 3) have nudged up above 40% from a low of just 18% at the start of this month so it'll be interesting to see how or if that changes post next week's meeting.”

As can be seen from Freddie Mac’s Mortgage Market Survey, last week, 30 Yr. Fixed Mortgage rates for conforming loans hit 4.66% having increased by 5 basis points (bps) from the previous week and are at the highs for 2018.

 

Treasury Prices Rise and Yields Fall 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 119’16 / 32nds; the 10 Year Note was up 3.5 basis points (bps) on the day, yielding 2.978%.  The US 30 Year Treasury Bond futures Contract for June settlement closed at a price of 142’25 / 32nds; the 30 Year Bond was up 18 basis points (bps) on the day, yielding 3.125%.  Mortgage Rates are at their 2018 highs and are up another 5 basis points (bps) from the previous Freddie Mac Survey last week.

 

Thanks to ZeroHedge.com, Conference Department, Bureau of Labor Statistics (BLS), Aspen Graphics / Bloomberg, BEA, BLS, Census Bureau, Federal Reserve, ISM, U of Michigan, IHS Markit, Bloomberg and Barclays Research, B of A Merrill Lynch Global Research, Goldman Sachs, Deutsche Bank (DB), 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.