Mortgage Rates Scared by Reaction to Discussion (end)

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Mortgage rates the beginning of the day was mostly in line with yesterday’s levels. Everything has changed afternoon. Bonds started to deteriorate slightly after a planned Treasury auction. These types of auctions can clarify the “demand” in the supply and demand equation, thereby causing little movement in the bond market at times.

IN greater influence followed the publication of the minutes of the latest Fed policy meeting. And this is where the x-factor brings clarity when it comes to equating supply and demand. When it comes to the Fed, we’re talking about the biggest demand engine in the MBS and US Treasury markets. Collectively, these bond markets are more influential than anything else in the day-to-day changes in mortgage rates. So when the Fed speaks, rates are listened to.

The Fed has been buying new Treasuries / MBS for $ 120 billion a month for over a year (also reinvesting proceeds from previous bond purchases). Ideally, the Fed doesn’t have to do this forever (some say they are already doing too much). When the Fed decides to change their bond buying plans, they will do so gradually. In other words, they REDUCE their bond purchases until it gradually drops to zero.

The Fed last hinted at a contraction after a prolonged period of active buying in May 2013. These comments spawned the infamous “cone tantrum”, which led to the sharpest leaps in rates in decades. Markets are understandably wary of repeating results, but today’s comments weren’t the same as those in the Federal Reserve minutes released on May 22, 2013 (a day I don’t even need to search because it is so firmly entrenched) in my memory) .

In 2013, the threat was real and the comments were unambiguous. Some Fed members were in agreement, and Bernanke did a preliminary review in Congressional testimony that same morning. At the time, the Fed was unanimous, and the reality of the contraction was firmly entrenched, preventing an unexpected pullback in the economy.

Today, on the contrary, was really just repetition comments that have already been made in various Fed speeches in recent weeks. The Fed is far from unanimous about this. There is even greater uncertainty about how the economy will develop in the coming months. And, perhaps most importantly, much of the rise in Treasury yields since last August is due to expectations of a possible gradual decline. Last but not least, it will understatement to say that the comment in question was highly qualified. See for yourself:

“A number of participants suggested that if the economy continues to move rapidly towards the Committee’s goals, it may be appropriate at some point in upcoming meetings to start discussing a plan to adjust the pace of asset purchases.”

Please be aware this meeting took place BEFORE the most recent vacancy report, which was significantly weaker than the previous one. However, the bonds were scared enough for mortgage lenders to issue them. average daily prices… The changes were by no means drastic, even if they might be inconvenient for those changing their bets. However, in most cases, the damage was limited to a slight increase in upfront costs, rather than a change in the “rate” itself. The average lender is still in the low 3% range for an ideal 30-year fixed maturity scenario.

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