Mortgage rates jumped on Monday, erasing all the gains from last week, as the bond market weakened amid optimisim over Greece’s debt talks. Pricing on U.S. treasury notes fell by the most in six weeks on Monday, as an upbeat housing market report and progress in Greece’s debt talks drove investors to riskier assets. Concerns over Greece’s debt crisis eased substantially in the beginning of the week, as negotiations edged closer to an agreement. Greece and its creditors are expected to strike a deal until the end of the week to prevent the troubled country defaulting on its debt payment. Following the news, that progress was made in the debt negotiations, U.S. treasury yields increased and they took mortgage-backed securities (MBS) with them for a ride, which eventually led to higher mortgage rates. Not only that, today’s upbeat housing market report also had an impact on mortgage rates and added more pressure on them, which ended up at significantly higher levels compared to Friday’s rates.
The yield on the benchmark 10-year treasury note soared at 2.37% on Monday, an uptick of 11 basis points compared with Friday’s 2.26% level. Also, the yield on the 30-year treasury note saw an increase to 3.16%, compared with 3.05% on Friday.
One would tend to think that today’s spike marks another bad day for mortgage rates, but in the current extremely volatile environment, which we have been experiencing in the last several weeks, it almost seems like normal. Still, floating could be dangerous with the current upward trend in mind, and also because of the fact that markets are moving rather on economic headlines and not on data these days. If you haven’t locked a rate last week, it’s probably too late now, as a number of lenders updated their rate sheets with higher rates. If you are a gamble hoping for a return to sub-4% rates, you may want to risk floating, but only float if you understand that it’s more likely that mortgage rates will increse than fall amid current market volatility.
National mortgage rates on 30-year fixed mortgage loans slightly eased last week, according to Freddie Mac’s latest Primary Mortgage Market Survey (PMMS). The federal agency’s data showed, that the average rate on the 30-year FRM saw a decline to 4.00% last week, a 4 basis points downtick compared to data in the prior week. The interest rate on the 15-year fixed mortgage declined as well, finishing the week at 3.23%, Freddie Mac’s report revealed.
Now, moving on to today’s economic calendar, one piece of housing industry data was released by the National Association of Realtors. According to the NAR’s data, existing home sales surged 5.1% to a seasonally adjusted 5.35 million in May, exceeding the consensus expectation. This marks the strongest pace of sales since November 2009. The data shows further evidence that the housing market is on the path of recovery. Also, April’s data was revised up to 5.09 million from the previously reported 5.04 million.
Tomorrow we will get a fair amount of domestic economic data, including new reports on durable goods orders, new home sales, U.S. manufacuring PMI, and some regional manufacturing data as well. The upcoming durable goods report for May is expected to show a decline of 0.2%. On the other hand, nondefense capital orders are likely increased 0.6% last month.
Markit’s U.S. manufacturing PMI is projected to show an increase to 54.1 in June, compared to 54.0 in May.
Economists are forecasting a solid increase of 1.1% in sales of newly-built homes for May. Back in April, new home sales advanced 6.8% to a seasonally adjusted 517,000, according to the Commerce Department’s data.
With regards to the topic of rate hike, San Francisco Fed President John Williams said on Friday, that he supports a wait-and-see stance on interest rate policy, until he sees evidence that the inflation target level is met. Williams said that he believes that a liftoff in rates will take place this year. Last week, the top Fed official and other members of the FOMC committee have stressed that the timing of a rate hike is dependent on how the economy performs in the near future. Furthermore, Williams told reporters, that the U.S. central bank should hike rates twice this year, provided that the incoming economic data meets expectations.
Currently, the general consensus is that the Fed will raise short-term rates in September. As we reported yesterday, Goldman Sachs Group now believes that a rate hike is more likely to occur at the Fed’s final FOMC meeting of 2015. Previously, the group projected that the tightening would take place at the September FOMC meeting.
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