Mortgage loan rates show good results last week after moving to lowest level in 5 months by Thursday noon. This week promises to be a bit different, However. In fact, by today, the average lender has lost most improvements from last week.
What’s Behind Volatility?
There are both General as well as specific considerations. In general terms, the bond market rally in the past week (stronger bonds = lower rates) may have been slightly exaggerated. They paved the way for a possible correction for purely technical reasons. In other words, nothing new or noticeable has changed since last Thursday that could have pushed rates up – at least until today.
Today brought specific considerations with Double punch from inflation data and treasury bond auction. The consumer price index, one of the main indicators of inflation, has grown at the fastest pace in nearly 30 years. Higher inflation = higher rates, ceteris paribus, so it should come as no surprise that some negative volatility emerged this morning following the data release.
Surprisingly, bonds turned out to be calming down shortly after the data. In fact, this may not be too surprising given that the market has done a pretty good job of accepting the recent higher inflation figures, based on the belief that things will settle down when the various supply chain disruptions since the coronavirus subside. the inflation rate was for used cars. In this case, the rise in car prices is almost exclusively supply-driven.
The 30-year bond auction was bigger criminal… Not to be confused with the fixed 30-year mortgage rate, the 30-year Treasury bond is nonetheless the benchmark for longer-term rates in the same way as the 10-year Treasury rate (although the latter is even more relevant to the mortgage market). When demand in auctions is weak, the market can quickly adjust to higher yields. This is what happened today, and this move has been reflected in the market for similar bonds (including those that underlie the mortgage market).
Transfer: Today’s bond auction triggered a rapid decline in bond prices and a rapid rise in yields. The vast majority of mortgage lenders reacted by raising their rates slightly this afternoon. Combined with the modest upward trajectory already in place for the week, this brings the average lender closer to the interest rate bids made at the beginning of the previous week.