Daily Rate Summary
Thursday, October 12th, 2017

Mortgage Rates and Treasury Yields Mixed.
On Wednesday, Treasury bond yields and Mortgage interest rates were mixed as the bond market was digesting Columbus Day holiday news for direction.  According to the Bureau of Labor Statistics (BLS), analyzed over the last 12 months, Producer Prices in September have surged at fastest pace in over 5 years.  The December 10 Yr. U.S. Treasury Note stood at a yield of 2.3481% and the 30 Yr. U.S. Treasury Bond is yielding 2.8824%.  30 Year Mortgages according to Freddie Mac were around 3.91% for conforming and 3.72% for Jumbo products.

 

The Consumer Price Index (CPI) rose at annualized rate of 1.9% while Producer Prices (largely due to a two-month burst in energy prices) rose at a 2.6% annual rate, its fastest since June 2012.  We hope that this is weather related and transitory as the Federal Reserve would be revealed to be behind the curve with respect to fighting inflation if this is the beginning of a trend.

BLS Consumer Price Index (CPI) Rises to 1.9% and Producer Price Index (PPI) Rises to 2.6% (YoY) in September.
(Chart courtesy of Zerohedge.com).

According to the BLS report, “The index for final demand services increased 0.4 percent in September, the largest rise since moving up 0.5 percent in April. Over 60 percent of the September advance can be traced to a 0.8-percent increase in margins for final demand trade services. (Trade indexes measure changes in margins received by wholesalers and retailers.)."

Adding, “Prices for final demand goods rose 0.7 percent in September, the largest increase since moving up 1.0 percent in January. Over 80 percent of the September advance can be traced to the index for final demand energy, which climbed 3.4 percent.”. 

Per Zerohedge.com, “Some reports highlights:  Final demand producer prices rose 0.4% in September (as expected).  Final demand ex food, energy rose 0.4% m/m vs est. up 0.2%.  Final demand rose 2.6% y/y, matching estimate.  Final demand ex food, energy rose 2.2% year-over-year vs estimate of up 2%.  Final demand ex food, energy and trade services rose 0.2% month-over-month.  Final demand personal consumption rose 0.5% m/m.  Final demand personal consumption rose 2.3% y/y.  Health care services (NSA) rose 1.4% y/y; unchanged m/m."

 

30 Year U.S. Treasury Bond Yield Testing upper range back above 2.85%.
(Chart courtesy of Zerohedge.com).

 

The 30 Year U.S. Treasury Bond has now tested the lows and returned to 2.85% the starting point since the market moving comments from ECB President, Mario Draghi regarding the tapering of bond purchases in late-June.

10 Year U.S. Treasury Note Yield Falls to 2.3481%.
(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 above 2.30%.
(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 Increase to 80%.
(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 3.91% up 7 basis points (bps) from the previous week.

 

Treasury Prices and Yields Mixed for U.S. 10 Yr. and 30 Yr. Treasuries.
At the Chicago Board of Trade (CBOT): In abbreviated Columbus Day Trading the US 10 Year Treasury Note futures Contract for December settlement closed at a price of 125’07.5 / 32nds; the 10 Year Note was down 1 basis point (bps) on the day, yielding 2.3481%.  The US 30 Year Treasury Bond futures Contract for December settlement closed at a price of 152’18 / 32nds; the 30 Year Bond was up 2 basis points (bps) on the day, yielding 2.8824%.  Mortgage Rates are just off their 2017 lows and are up 7 basis points (bps) from the previous Freddie Mac Survey last week.

 

Thanks to ZeroHedge.com, Bureau of Labor Statistics (BLS), 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.