Mortgage rates improved on Thursday, as U.S. government bonds rallied and pricing on mortgage-backed securities (MBS) ticked up as well. After the bond market took a heavy beating almost every single day over the last two weeks, which led to sharp increase in mortgage rates, we are seeing a welcome change this Thursday. Following a strong 30-year treasury bond auction earlier this afternoon, government bonds posted a big rally, with the yield on the benchmark 10-year treasury note falling to 2.383%, compared with Wednesday’s 2.478% level. Today’s decline in yield marks the biggest daily decrease since March 18.
The improvement in U.S. mortgage rates on Thursday was driven by a couple of factors including news from the Eurozone and incoming domestic economic data, which signals a rebound in the second quarter. European bond markets were rallying today, thanks to fresh news, that Greece has yet to strike a bailout deal with its creditors and major differences remained between the parties, following Thursday’s meeting. A day earlier Standard & Poor’s downgraded Greece’s credit rating into junk territory, stating that the country will likely default within a year, unless a bailout deal is reached. As it looked like that optimism over a Greek debt deal is fading, markets reacted on Thursday. German Bunds rallied during the day, and they pulled U.S. treasuries for a ride.
Although, mortgage rates finally regained at least a fraction of the ground they lost in the last few weeks, not all lenders passed along the gains yet. It seems lenders are more cautious with repricing when releasing their rate sheets, which could be due to the sentiment change toward higher rates, as well as the extreme swings and volatility markets have been experiencing lately. However, due to today’s gains, borrowers may see lower closing costs.
As far as national mortgage rates are concerned, the 30-year fixed mortgage spiked to 4.04% from last week’s 3.87%, according to Freddie Mac’s Primary Mortgage Market Survey (PMMS) released this Thursday. The 15-year FRM averaged a rate of 3.25% this week, a sharp increase compared to the previous 3.08%, that it held in the prior week, the federal agency reported.
In the last three days we haven’t seen any significant domestic economic data, which is no surprise considering this is a very slow weak. However, today we have got an important batch of data, including the retail sales report for May. According to the Commerce Department’s figures, retail sales ticked up 1.2% last month, which is in line with the consensus expectation. Back in April, retail sales saw a disappointing 0.2% gain, so May’s figure indicates that consumer spending is rising nationwide. Core retail sales, which exclude auto and gasoline categories, rose 0.7%, beating forecasts of a 0.5% increase.
A fresh data from the job market showed, that initial jobless claims came in at 279,000 last week, slightly above the consensus expectation of 275,000 claims for unemployment benefits. This all points to a healthy labor market, as any reading below 400,000 is considered as a positive one by many analysts. The four-week moving average rose by 3,750 to 278,250.
As news broke that Greece’s debt talks have stalled, speculation among investors have increased that the Federal Reserve will lift short-term interest rates this year. Fed Chair Janet Yellen said last month in a speech at the Providence Chamber of Commerce in Rhode Island, that the U.S. central bank remains on track to hike rates this year. However, the Fed expressed, that the timing of a rate hike depends on the incoming economic data. Back in May, most of the domestic economic data was weak or mixed at best, raising concerns over the U.S. central bank’s planned rate hike. Nevertheless, the recent set of jobs data, manufacturing reports and retail sales data look encouraging, signaling that the economy could be back on track in the second quarter.
Still, the most likely scenario is the Fed will starting raising rates in September, according to most analysts. An increase in short-term interest rates in June or July isn’t plausible, even that domestic economic conditions are improving lately.
And speaking of rate hike, the World Bank has become the latest organization that called on the Fed to hold off its planned rate hike until 2016. The financial institution believes that keeping short-term rates near zero could help avoid such financial market volatility that took place in the summer 2013. Last week the IMF also warned the U.S. central bank to delay raising rates until the economy gets back on track and target inflation levels are met.
Mortgage interest rates caught a break today, but only time will tell whether the current levels are holding on for some time or not. Now, there has been a strong pressure toward higher rates, due to a couple of factors. From a historical perspective rates still look very attractive, so if you are interested in getting a mortgage these days, this is a good time to lock. On the other hand, if your risk tolerance is high, you can always float for a big reward, but only float at your own risk.
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