Mortgage Rundown: June 29th 2017


Hello everyone and welcome back to the Mortgage Rundown Today we are going to talk about what’s happening with interest rates

As a lot of you may have noticed, mortgage rates have been coming down for the past several months despite the fact the Fed continues to raise their benchmark rate They’ve raised it a quarter percent in December, a quarter percent in March and a quarter percent in June That’s ¾ of a percentage in rate increases in 6 months However since December the 2yr Treasury is up only 17bps and the 10yr is actually down 25bps So how is that the Fed is raising rates but Treasury rates aren’t moving up as much, and more importantly why are mortgage rates going down? Take a look at the graph on your screen

This is the spread between the 2yr Treasury and the 10yr Treasury often referred to as the shape of the yield curve As you can see the spread is compressing to near the lows of the last 8 years Traders often use the shape of the yield curve to project the path of interest rates going forward When the shape of the curve goes negative, that’s been a relatively good indicator of a recession upcoming The first thing to note is that that Fed wants to raise interest rates, make no mistake about that

They want to preserve accommodation for a time down the road when they may need more economic stimulus But they also need to be careful because inflation is looking weaker and weaker and the market only prices in a 50% chance of one more interest rate raise this year Another observation worth noting is that the Fed is relying on a belief that because the unemployment rate is so low that eventually wages will rise and bring inflation along with it I would say that is a very controversial opinion at this point All other inflation indicators such as food, commodities and so forth are trending towards zero inflation and possibly deflation

So if the Fed is right then expect the long end of the curve to rise and with it mortgage rates This may be a great time to lock your mortgage rate In fact, historically it’s a great time to lock in a fixed rate mortgage when the yield curve is flat However if they are wrong and long term rates drop then the yield curve could invert and recessionary fears will plague the market In the coming weeks you should keep an eye on the following items: 1

Friday brings the Fed’s preferred inflation measure of PCE – that’s personal consumption expenditures 2 The Fed’s June meeting minutes will become available on the 5th – perhaps it might shed some light on the discussion topics between Fed members behind closed doors 3 And last but not least we start a new month so don’t forget payroll data and the unemployment rate will be available on Friday the 7th If you would like a more in-depth analysis, please visit our blog

You can find it in the description below Thanks for watching and have a great day

Source: Youtube


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AJ

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