For those living in a cave for the past few days, you might have emerged and found a new biosphere.
After months+ of a sluggish rate market, the marketplace is now on a rampage. Stocks are on the rise; Bonds are on the rise; and Mortgage Rates are on the rise.
- For mortgage backed securities (chart 1) we have lost almost 400 basis points in a matter of weeks. Unfortunately, it might not be over. Since the presidential election results just a few short days ago, we have broken through every floor of support, and have lost 200bps in a manner of days. Fundamentally, we have broken beneath all of the ‘support’ levels that would have held bond pricing, and are now in a position where pricing on bonds do not have actual support for another 100bps to the downside. This can lead to continued increase in mortgage rates.
- Conversely, the 10yr US Treasury has increased by an exorbitant amount in a very short period of time as well. The 10yr UST is now at the highs of the year (chart 2). Based on the ‘technicals’, if the sell-off in bonds do not slow or pull-back, we can see continued pricing erosion until we hit ‘support’ at 2.38.
- Much to everyone’s surprise, the stock market is surging and there are no shortages to the speculation as to why the stock upsurge and bond sell off in response to the Trump election.
Whatever the catalyst, we are in a new market sentiment on rates and as I said earlier, it might get a little worse before it gets better.
Just to put this into perspective, if mortgage rates are on their way to a ½ point increase, on a $400,000 mortgage that would result in a $112 monthly payment increase and a $40,000 increase in interest over the life of a 30 year mortgage loan.
For those on the fence, or for those unsure if or when the time to act is appropriate – the answer is here and now.