Mortgage rate face melter unleashed as bond prices crash and rate hike odds spike 😱📉⬆️
Flash Market Update
March madness is no longer just a basket tournament; it is also the state of the U.S. bond market as prices have been crashing since “Operation Epic Fury” first began in Iran.
Mortgage rates do not rise or fall. Instead, the price of rates changes based on the trading of mortgage-backed securities.
These individual mortgage bonds (MBS) march to their own drum, but take queues from the broader bond market, specifically longer duration U.S. Treasury Notes (7 – 10 year).
Unfortunately, today the inflation outlook outside of the U.S. sparked a face melter of a bond crash after the dam first broke in Gilts (UK bonds).
As a result of the selling pressure across global bond markets, the lower MBS coupons (i.e. 4.5) were down 100 bps in price at one point today (32 ticks).
If you were considering a 30-Year Fixed conventional mortgage between 4.75% - 5.75%, it has jumped in price anywhere between 200 – 300 bps since the month started.
That means a February 27 rate quote on a $500k loan is now upwards of $15,000 more expensive.
There is very little saving grace when bonds are on the run like this.
However, if we are going to find any optimism it is in yield curves.
A bear flattener has been underway, which implies the market now thinks a Fed rate hike is on the horizon.
Bear flatteners followed by rate hikes often precede recessions.
Recessions often lead to higher bond prices, and lower mortgage rate prices ...hopefully.
There is not much to be said that hasn’t already been highlighted the last three weeks and further emphasized by the images above.
Thanks for reading.
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