No easy wins for mortgage bets



10-year yields may have hit their lowest level in months in the wee hours of the morning, and people can always feel too strong a correlation between 10-year yields and mortgage rates, but the latter hasn’t had the same success. To be honest, Treasury bonds turned out to be losing during the day, but even so they are closer to their recent lows than mortgage rates.

The mortgage market copes with several obstacles of my own when it comes to this competition. The first is related to the yield curve (i.e., with different rates of return on Treasury securities in different time frames). Rather than betting on the direct levels of US Treasuries, traders often place bets on the relationship between the two levels. If they see that long-term rates are approaching short-term rates, this is called “flattening“(because the yield curve will be flatter).

Levelers were at their peak following the Fed’s announcement last week, and they tend to be better news for 10-year Treasuries than mortgage rates. Today has actually brought the opposite trading pattern ( cooler), and indeed, the mortgage market has grown better than 10-year Treasuries, but in today’s case, that simply means that mortgage rates have not risen as much as Treasuries.

Even if the mainstream mortgage bond market triumphs in the coming days, it can’t translate to a significant improvement in the tariffs offered to consumers. Cause? Volatility! The faster and stronger the fluctuations between high and low, the more expensive it becomes to obtain a mortgage. This expense is felt in the form of slightly higher rates, ceteris paribus.

Finally there is just a risk that in general, the bond market goes into a sideways trend, expecting more actionable information in the coming months. In this case, it is easier to assert that the current levels are closer to the lower border of the probable range. This means a slightly greater risk of upward pressure than the possibility of rate cuts.

All that was said is never predict the future of the markets. There are reasons why the rates could be even lower. But if they do, it will be slow.

Today it is was not the end of the world. Some lenders did match last week’s rate bids, depending on the time of day when their last tariff sheet was drawn up on Friday, and their new price list today. However, on average, the usual 30-year fixed rates are only a hair higher.


Source link