Mortgage rates moved higher yesterday after the auction for 30-year bad bonds (read more…). The bond market began to recover during the overnight trading session. By the time American traders recorded this morning, more than a half weakness erased. Things only got better as the day went on. And all this despite the latest inflation report, which exceeded expectations (which traditionally puts upward pressure on rates).
While inflation is really bad for rates, all things being equal, there is a few caveats At the moment. First, the current surge in inflation is well understood as being driven in large part by covid-related supply chain disruptions, even if boundaries are not easy to predict in the short term. Everyone hopes or expects that the inflationary surge will be temporary and the markets are trading accordingly – for now.
We also have assurances from Fed Chairman Powell in today’s testimony from Congress. Powell said that while inflation data was surprisingly high, the Fed still expects it to calm down. Moreover, if he doesn’t calm down, the Fed has the tools to tackle it. More importantly, the Fed has yet to see what it needs to see to cut back on bond purchases, although the conversation continues on how to do this.
The bond buying program is one of the main reasons for such low rates. Thus, when Powell says things about his longevity, evaluation like it! With all that said, these ups and downs continue to appear in a fairly narrow range. Between yesterday and today, the average borrower will see improvement only in the form of upfront costs / loans as opposed to the “bill rate” itself. Note rates are usually offered in 0.125% increments, and the bond market rarely moves enough in one day to anticipate such a change. Upfront payments / credits provide finer customization.