This week, the Fed announced a reduction in its bond buying. In separate news, the big jobs report was much stronger than expected. Both of these events should have pushed rates higher. So why didn't they?
Let's start with the Fed and its bond buying adventures (also known as QE or "quantitative easing"). The following chart of 10yr Treasury yields (a broad benchmark for "rates") shows the paradoxical reactions to the Fed's previous decisions to stop buying bonds.
In other words, we knew a paradoxical reaction was a possibility , even though past precedent is never a guarantee. Beyond that, we also knew that rates were moving higher in anticipation of the Fed's eventual exit. In fact, by last week, they'd already covered as much ground as they did in 2013.
Posted: November 5, 2021, 10:53 pm
Mortgage rates fell today as markets decompressed following yesterday's announcement from the Federal Reserve regarding the reduction of its bond buying efforts (aka "tapering"). Despite the proximity to Fed day, markets were more inspired by another central bank today: the Bank of England (BOE).
The BOE had its own policy announcement early this morning. Unlike the Fed, there was broad disagreement about the BOE's course of action. They ended up making the more rate-friendly decision and global bond markets reacted immediately. Unsurprisingly, it was the British bond market that had the best day, but there's always a certain degree of correlation between UK and US lending rates. As US sovereign debt yields fell, mortgage-backed b
Posted: November 4, 2021, 8:17 pm
Mortgage rates moved higher today after the Federal Reserve announced a reduction in its rate-friendly bond buying program. Actually, to be fair, rates moved higher before the Fed made that announcement, and largely for other reasons. The biggest issue today was, in fact, a widely followed report on the service sector (ISM Non-Manufacturing PMI) which crushed its previous record high. Bonds experienced additional volatility in the afternoon following the Fed announcement, but they were able to recover back to pre-Fed levels within 2 hours.
The average mortgage lender began the day offering similar rates to those seen yesterday. Several lenders responded to bond market weakness by raising rates slightly in the middle of the day. The average b
Posted: November 3, 2021, 8:07 pm
Mortgage rates began the day moderately lower compared to yesterday's latest levels. The size of the move depends on the time of day in question due to intraday movement in the bond market. Simply put, bonds improved steadily from the beginning of the day yesterday and ultimately peaked around 11am today. In general, bond market improvement correlates with lower rates.
The first effect of this 2-day move was for the average lender to offer mid-day improvements yesterday. Those who did (a vast majority) were still able to offer even lower rates this morning. Lenders who did NOT offer mid day improvements yesterday made even bigger leaps toward lower rates. When the dust cleared, the peak to trough move accounted for almost an eighth of a percent
Posted: November 2, 2021, 7:58 pm
Mortgage rates moved moderately lower today despite an absence of significant movement in the bond market. In general, when bonds improve, rates fall (and vice versa), but it's not feasible for mortgage lenders to adjust their rates offerings in relative real-time as bonds can send massively mixed signals on any given day.
Last Friday was just such a day. It began with bonds doing very poorly . The weakness was in place before the average lender published their first rate sheet of the day, so mortgage rates started out higher. As the day progressed, bonds improved enough for many lenders to make mid-day improvements to rates, but bonds suggested the improvements should have been bigger.
That's where today came in. Bonds began weaker yet a
Posted: November 1, 2021, 8:02 pm
For anyone following interest rates very closely in 2013, the taper tantrum is not easily forgotten. It describes the bond market's knee-jerk response to the realization that the Federal Reserve would be winding down its bond purchase program. With the Fed almost certain to make a similar announcement next Wednesday, should we be scared yet again?
In a word: no .
Of course, we'll need to qualify that. First off, whether or not we should be scared has little to do with whether or not the taper announcement will push rates higher. Perhaps the better question--the one to which we can answer a more unqualified "no"--is as follows:
Should we be afraid that next week's tapering announcement from the Fed will push rates higher?! There are a few reasons we can answe
Posted: October 29, 2021, 9:53 pm
Mortgage rates finally ended this week's winning streak today. In light of the general upward trend in rates over the past month, bond yields (which tend to correlate with mortgage rate movement) made it to surprisingly low levels as of yesterday afternoon. Mortgage lenders responded by dropping rates to the best levels in nearly 2 weeks.
Things changed today as bonds lost ground after the European Central Bank noted a still-decent outlook for the economy recovery and an earlier-than-expected outlook for ending its bond purchase program. In general, a stronger economy hurts bonds and central bank purchases help.
Then in the afternoon, a scheduled auction of 7yr US Treasuries was met with less enthusiastic demand compared to recent auctions. The day
Posted: October 28, 2021, 8:45 pm
Mortgage rates began moving off longer term lows in early August and that trend has continued ever since. The September 22nd Fed Announcement (and press conference with Fed Chair Powell) served as a jumping-off point for additional volatility and upward momentum. In contrast, October has generally seen rates rise at a more gradual pace. On several occasions, they've merely held almost perfectly in line with the previous day's levels. Today is just such a day!
There were no notable motivations for the underlying bond market today (bonds dictate interest rates). As such, today's sideways momentum makes sense. That said, it's worth mentioning that there are different versions of "sideways" when it comes to the financial market. Today's versio
Posted: October 20, 2021, 7:44 pm
Mortgage rates had a mixed showing last week. They started out high before improving through Thursday. Finally, they took a step back up on Friday. Now at the start of the new week, the upward momentum is continuing. The bond market was much weaker in overnight trading, and weaker bonds mean higher rates, all other things being equal.
Bonds hit their weakest levels just before the average mortgage lender released rates for the day. As such, the average conventional 30yr fixed rate quote was the highest in roughly 4 months .
As the day progressed, bonds found their footing to some extent. It was enough for most lenders to offer mid-day improvements to rates. Keep in mind though, these improvements are generally small.
Posted: October 18, 2021, 7:24 pm
Mortgage rates fell today as a majority of lenders finally got caught up with the past few days of strength in the bond market. Lenders rely on bonds--specifically mortgage-backed securities (MBS)--to determine where to set mortgage rates. Bonds are constantly on the move, but lenders prefer to just set mortgage rates once per day, if possible. As such, when volatility is higher and when rates have been rising more than falling, lenders tend to be more defensive. In other words, they need to see more sustained improvement than normal before bringing rates back down.
Today's improvement was the biggest of the week, and it brings the average conventional 30yr fixed quote well below those seen at the end of last week. Even so, there are numerous
Posted: October 14, 2021, 8:25 pm