Daily Rate Summary
Friday, November 17th, 2017

Mortgage Rates and Treasury Yields Rise.
On Thursday, Treasury bond yields and Mortgage interest rates rose as bond investors remove yield curve flattening strategies and see duration risk as a potential problem and interest rate risk being repriced as the push for wage increases for workers is debated in Congress as the over-arching motive for Tax Plan reform legislation.  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.  Treasury Note stood at a yield of 2.3753% and the 30 Yr. U.S. Treasury Bond is yielding 2.8268%.  30 Year Mortgages according to Freddie Mac were around 3.95% for conforming and 3.74% for Jumbo products.

 

Housing Starts and Building Permits rebounded in October after storm-soaked September.  The National Association of Realtors (NAR) reported that following September's storm-driven tumble, October has seen a big rebound in Housing Starts (+13.7% MoM) and Permits (+5.9% MoM) both beating expectations, as multi-family starts explode.  According to Zerohedge, “Housing starts printed above all analysts' guesses (4 standard deviations above expectations) for the biggest monthly jump in a year” in October.

Housing Starts and Permits Rise Sharply in October (MoM).
(Chart courtesy of Zerohedge.com).



According to NAR, “The surge in starts was driven by a major rebound in multifamily units.  That is a 37.4% increase month over month in October multifamily starts with only a 5.3% increase in single family starts. However, multifamily starts are still down 9.6% YoY (single-family starts are up just 0.7% YoY) and overall housing starts are down 2.9% YoY.  Single-family permits reached a new cycle high.”

Historical Context Housing Starts and Permits (1960 - Present).
(Chart courtesy of Zerohedge.com).



In the context of housing cycles, this recovery was incredibly weak in its’ unfolding as an exercise in economic sector recovery.  The Echo Baby Boom cohort has now reached full Adulthood and given re-inflated asset prices and low wages they will not be participating in the ‘american nightmare’ of home ownership anytime soon.  Given that the Tax Plan proposed is going to kill the itemized SALT deductions for State & Local Tax payments, Interest deductions, and Property Taxes together raises the average monthly carrying cost by $300-400/ month in pervious Federal income tax savings.  Maybe that is just as well, seeing that another Financial Crisis may just be on the way again soon, and current at-risk homeowners may be coughing up unaffordable domiciles by struggling highly levered consumers.

30 Year U.S. Treasury Bond Yield Testing range back above 2.80%.
(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 Year U.S. Treasury Note Yield Climbs back to 2.3753%.
(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 weeks.  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.

10 Year U.S. Treasury Note Yield Longer-term View back below 2.40% again.
(Chart courtesy of Zerohedge.com).

 

 

 

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.

December Fed Funds Futures Rate Hike Odds Rise above 97%.
(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 3.95% 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 December settlement closed at a price of 124’27.5 / 32nds; the 10 Year Note was down 6 basis points (bps) on the day, yielding 2.3753%.  The US 30 Year Treasury Bond futures Contract for December settlement closed at a price of 153’18 / 32nds; the 30 Year Bond was down 14 basis points (bps) on the day, yielding 2.8268%.  Mortgage Rates are just off their 2017 lows and are higher by 5 basis points (bps) from the previous Freddie Mac Survey last week.

 

Thanks to ZeroHedge.com, The National Association of Realtors (NAR), BofA 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.