Bonds & Mortgage Rates 30 Yr Trend

Bond Yields - 30 Years

Bond Yields – 30 Years

Rates are off to a stable start in 2014. That is impressive considering that the Fed has officially begun the “tapering process.” The mortgage rate market has not yet seen a negative reaction to the official start of the Fed’s taper (Fed taper: the unwinding of the rate supporting program that started in Dec of 2009 and it is what pushed rates to historical lows).

Home Loan Ratres – A Picture is Worth 1,000 Words

I wanted to share a very revealing visual with you. The graph/image above shows bond yields over the past 30 years. Mortgage rates follow the same pattern as bond yields. As bond yields (not bond prices) rise, interest rates rise and vice versa. As you can see, bond yields have varied within a very constrained channel for 30 years (yes YEARS). Over the past 3 decades, you can see yields trend up to the ceiling (while mortgage rates also rose) then trend back to the floor (as mortgage rates also fell). Yields are currently in an upward trend back toward the top of the ceiling of the channel. That means there is a good chance from this perspective (strictly a technical perspective) that mortgage rates may rise slightly as there is room between today’s plot on the graph and the ceiling of the channel. This chart also shows that from a historical and technical perspective that there is little chance that rates will “sky rocket” out of control.

In the short-term (as in tomorrow) we need to keep our focus on the new jobs and unemployment rate data due out tomorrow. Overly and surprisingly positive data (lots of new jobs/lower than expected unemployment rate) will send rates upward. Overly and surprisingly disappointing data (lower than expected new jobs/higher than expected unemployment rate) will cause mortgage rates to drop. My expectation for tomorrow’s new jobs data and unemployment rate is that they are both luke warm leaving interest rates relatively unmoved. New jobs of 250k + and/or unemployment of 6.9% or lower could spark a rise in rates. Stay tuned for an interesting day tomorrow!

My Advice to Protect Your Mortgage Rate

Lock all loans in today ahead of the news on a float down. The float down will allow for any client to lower their rate if the market improves after they have locked in while protecting them if rates tick up tomorrow.

By Jeremy House

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