Recently I heard from my friends Julian Hebron and Brandon Hoyles over at RPM Mortgage. The boys wanted to provide an update on mortgage rates, and I was happy to listen.
They compared the current market to the movie Sideways, which features, as they put it “a rough road to nowhere.” In the last two weeks, they say, they’ve seen volatile rate spikes followed by corrections.
“This sideways range looks like it’ll continue sideways at best,” they predict, “with potential to go higher.” So what does this mean? Well, since mortgage bonds are taking their cues from Treasury notes, rates will rise when bond prices drop in a selloff – and that’s what’s happening currently with the 10-year note.
With U.S. stocks on a tear, the boys note, European stocks are weaker – and should that weakness persist, U.S. stocks could feel it as well. That would mean money going back into bonds and blocking rates from a sharp rise.
“But a drop in rates is still elusive,” they write. “The 10-year note is still hovering right under the important 2 percent threshhold and the Fannie (Mae) 3 percent coupon is also at a technically precarious level of 103-01, leaving room to fall and rates to rise.”
They also caution that a U.S. fiscal debate may flare up should automatic spending cuts kick in by March 1. But if a fiscal deal is cut, they say, even a short-term deal means that rates will continue on their “sideways to higher” trajectory.
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