Lots at Stake For Rates Next Week
Mortgage rates managed to have a nice, boring Friday with minimal movement. That’s a victory considering yesterday saw a decent move lower, but victories are eternally tempered by the long term chart as long as the long term chart looks like this: Not a fun chart, but look at it this way: the higher we go, the closer we are to the top. That may sound like a meaningless platitude, but there’s a real kernel of logic behind it. We know that the Fed hikes short term rates (which filter through to longer-term rates like mortgages) in order to crimp economic demand and bring prices lower. In that sense, higher rates do indeed bring about lower rates. This is an interesting and important time for that thesis, as a matter of fact. In the past few weeks, the Fed has increasingly flagged the sharper rise in longer term rates as evidence that it doesn’t need to hike short term rates anymore. The Fed has also said it is hearing talk of economic softening that’s not yet showing up in the data. This comes at a critical moment for a few reasons. First off, longer term rates actively bounced against an important ceiling over the past two weeks. The following chart shows it in terms of 10yr Treasury yields, the most commonly used benchmark for longer-term rates. While the chart is labeled with 4.99, this is really about the big psychological impact of “5% Treasury Yields!” Some investors think that’s an attractive entry point to buy bonds. Others simply think it’s a big psychological level and thus time to get sideways before the next big dose of motivation arrives.