Tag Archives: Mortgage rates

US Treasury 10-Year Yield Breaks Out, Mortgage Rates Jump to Highest in 7 Years, by Wolf Richter

The yield on the 10-year treasury note has been trending irregularly upwards since July 2016. Today it set a new high for the move. From Wolf Richter at wolfstreet.com:

But no blood in the streets. Just a rate-hike cycle at work.

Today the US Treasury 10-year yield broke out of its recent range and surged 8 basis points to 3.08% at the close, the highest since July 2011. The price of a bond falls when its yield rises.

The odds have been stacked against the bond market for a while: the Fed’s rate-hike cycle, the Fed’s QE Unwind, a surge in government spending, the tax cuts, and the ensuing onslaught of debt issuance that is looking for buyers.

In addition, and with impeccable timing, the biggest US corporations with the most “cash” parked “overseas” are now “repatriating” this “cash” and are using it to buy back their own shares. What this really means for the bond market is this: This “cash” isn’t cash but is invested in securities, mostly US Treasury securities, corporate bonds, and the like. Companies are now selling those securities in order to use the proceeds to buy back their own shares at a record pace. So these huge bond buyers have turned into net sellers.

In other words, to entice enough new investors into the market, yields have to rise to make those bonds more attractive.

While short-term Treasury yields have been rising for a couple of years in a fairly consistent manner, longer-term yields are not so well-behaved and, despite the Fed’s efforts to push them up, are subject to messy market forces and speculative positions, including large short positions. And so the 10-year yield has moved in leaps followed by some backtracking until the next break-out and leap. Note that the most recent back-track only lasted a couple of months and barely shows up on this chart:

The two year yield ticked up to 2.58%, the highest since July 2008:

The difference (spread) between the two-year yield and the 10-year yield widened from 45 basis point to 50 basis points (0.5 percentage points), as the 10-year yield rose faster today (by 8 basis points) than the two-year yield (3 basis points).

To continue reading: US Treasury 10-Year Yield Breaks Out, Mortgage Rates Jump to Highest in 7 Years

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What Will Rising Mortgage Rates Do to Housing Bubble 2? by Wolf Richter

Rising interest rates will increase the cost of financing a house with a mortgage. If they go up enough, expect the housing market to falter. From Wolf Richter at wolfstreet.com:

Oops, they’re already rising.

The US government bond market has further soured this week, with Treasuries selling off across the spectrum. When bond prices fall, yields rise. For example, the two-year Treasury yield rose to 2.06% on Friday, the highest since September 2008.

In the chart, note the determined spike of 79 basis points since September 8, 2017. That was the month when the Fed announced the highly telegraphed details of its QE Unwind.

September as month of the QE-Unwind announcement keeps cropping up. All kinds of things began to happen, at first quietly, without drawing much attention. But then the trajectory just kept going.

The three-year yield, which had gone nowhere for the first eight months of 2017, rose to 2.20% on Friday, the highest since October 1, 2008. It has spiked 82 basis points since September 8:

The ten-year yield – the benchmark for financial markets that most influences US mortgage rates – jumped to 2.66% late Friday.

This is particularly interesting because the 10-year yield had declined from March 2017 into August despite the Fed’s three rate hikes last year, and rising short-term yields.

At 2.66%, the 10-year yield has reached its highest level since April 2014, when the “Taper Tantrum” was winding down. That Taper Tantrum was the bond market’s way of saying “we’re shocked and appalled,” when Chairman Bernanke dropped hints the Fed might eventually begin tapering what the market had called “QE Infinity.”

The 10-year yield has now doubled since the historic intraday low on July 7, 2016 of 1.32% (it closed that day at 1.37%, a historic closing low):

Friday capped four weeks of pain in the Treasury market. But it has not impacted yet the corporate bond market, and the spread in yields between Treasuries and corporate bonds, and particularly junk bonds, has further narrowed. And it has not yet impacted the stock market, and there has been no adjustment in the market’s risk pricing yet.

To continue reading: What Will Rising Mortgage Rates Do to Housing Bubble 2?

What’ll Happen to Housing Bubble 2 as Mortgage Rates Jump? by Wolf Richter

If mortgage rates keep rising, it is self-evident what will happen to housing bubble 2: it will pop. From Wolf Richter at wolfstreet.com:

Oops, they’re already jumping.

In the few days since the election, we got a flavor of what might happen when the bond market sees hues of inflation, expects the Fed to respond, and suddenly (after years of closing its eyes to it) dreads a tsunami of government deficit spending, on top of the flood of deficit spending already washing over the land.

The US government borrowed on average $850 billion per year over the last two fiscal years, in total $1.71 trillion. Very soon, the gross national debt will hit $20 trillion. And with a little help from the next administration’s plans, the annual new debt to be issued by the US government could balloon far beyond $1 trillion a year.

These bonds will have to be sold to someone, but the Fed is no mood of buying; instead, it has been flip-flopping about raising rates.

And the biggest foreign holders of US Treasuries are now net-sellers, according to the Treasury Department’s International Capital Data for September, released today. China dumped another $28.1 billion in Treasuries, bringing its stash down to $1.16 trillion, the lowest since September 2012. Japan, the second largest holder, shed $7.6 brillion, cutting its pile to $1.14 trillion. Saudi Arabia has been selling hand over fist for eight months in a row. Its holdings are now down to $89.4 billion. In total, foreign holders dumped $76.6 billion of Treasuries in September.

When the election moved Trump’s campaign promises of fiscal stimulus spending a step forward, with buyers scarce and sellers plentiful, Treasury prices, which had been declining since July, fell hard and yields soared. This is the “Trump spike” of the 10-year Treasury yield, including today’s much needed breather – the little hook adorning the spike (chart via StockCharts.com):

Since July, the 10-year yield went from 1.35% to 2.25%, with about half of that journey in the days since the election. And mortgage rates follow Treasury yields.

The Mortgage Bankers Association (MBA) reported today that the average 30-year fixed rate mortgage with conforming loan balances ($417,000 or less) jumped from 3.77% last week to 3.95% this week.

According to Mortgage News Daily, the average 30-year mortgage rate had hit 4.02% on Tuesday, up 0.40 percentage point in three trading days (Friday the bond market was closed). It was the biggest three-day spike in mortgage rates since the Taper Tantrum in the summer of 2013.

And this spike in rates immediately hit demand for mortgages during the week. According to the MBA, mortgage applications dropped 9.2% seasonally adjusted and 10% not seasonally adjusted from the prior week, with refinance activity dropping 11% and purchase activity dropping 6%. The report explained the phenomenon this way:

Following the election, mortgage rates saw their biggest week over week increase since the taper tantrum in June 2013, and reached their highest level since January of this year. Investor expectations of faster growth and higher inflation are driving the jump up in rates….

But it wasn’t just this week. According to the report, rates have increased in four of the past five weeks.

To continue reading: What’ll Happen to Housing Bubble 2 as Mortgage Rates Jump?