Mortgage rates are well off overnight lows from Friday. There could be a reversal higher come later this week. Pay attention to the 10-year-yield – we want to see it hold beneath 1.50%. Mortgage Bonds are also moving in lockstep with Treasuries. The 10-year-yield are not translating to your rate sheet… yet.
Heavy added supply, key inflation data along with Federal Reserve Chair Jerome Powell on Capitol Hill this week are a few events ahead that could further impact the markets as well as rates.
Fed Chair Powell will be on the Hill on Tuesday testifying before a House Select Subcommittee on the Coronavirus Crisis and the Fed’s response. Powell will also speak about the economy. There will be a host of Fed members speaking this week and comes after the Fed’s Bullard’s hawkish comments which added more volatility in the markets.
There should be no new rhetoric from Fed Chair Powell on the economy, but you never know. The Fed’s key inflation gauge, the Core PCE, will be released on Friday and is expected to rise 3.5% annually. All eyes and ears will be watching the month-over-month numbers after the hot CPI data for May which rose 5%, the largest annual gain since 2008. Inflation should be transitory as the Fed has said. But there may be “persistent” inflation pressure for a little longer. At the moment, the Treasury market does not seem overly concerned about runaway inflation for an extended time, otherwise, the 30-year Treasury Bond yield would have ticked beneath 2.00% last night but is now at 2.06%. The Treasury will be selling a total of $183B in 2-, 5- and 7- year Notes.
Technically, the FNMA 30-year 2% coupon is turning away from resistance at the 50-day Moving Average and has not enjoyed the same rebound higher in price over the past few days. As mentioned, the 10-year yield is at 1.47% and below the key 1.50% level.
From a pipeline management perspective, we still like floating clients closing longer-term with the 10-year yield beneath 1.50%. The same can be said for brand new clients walking in the food this week. If the 10-year yield moves back above 1.50%, we will likely see a continued move lower in Mortgage Bonds.