Mortgage rates increased modestly on Thursday, which marks the fourth straight day that rates are higher. These days the bond market is taking cues from the Fed’s rate hike expectations, and since the probability of a monetary tightening has sharpy increased in the last few days, bonds are experiencing weakness. The average lender is now quoting the 30-year fixed conventional mortgage at a rate of 4.25%, but at some of the more aggressive loan providers it’s available at 4.125%, according to the latest data.
U.S. treasury bonds continued their upward movement for the second day in a row on Thursday, with the benchmark 10-year note finishing the day at a yield of 2.49%, an uptick of 3 basis points compared to data from Wednesday. Yields on longer-term treasury bonds, like the 30-year note, ticked up as well, with the aformentioned bond closing the trading session at 3.09%, compared to 3.06% a day earlier.
On Friday morning, mortgage-backed securities (MBS), which are bonds that tend to dictate the direction of mortgage interest rates, are in a negative territory. If pricing on MBS stays in the red, mortgage lenders may alter today’s mortgage pricing for the worse.
A number of Fed members sounded hawkish this week, as they shared their views on monetary policy. And their comments indicated, that the U.S. central bank might be ready to resume raising its key short-term rate as soon as March. Growing expectations of a rate hike at the upcoming FOMC meeting this month have been a major factor that impact bond market movements. Currently, market participants are pricing in a 75.3% probability of a rate increase in March, according to the latest data tracked by the CME FedWatch tool. Last week, the probability of a rate hike had been pegged well below 50%.
Mortgage interest rates eased nationwide in the week ended March 2, according to McLean,VA-based government-sponsored enterprise, Freddie Mac’s latest weekly Primary Mortgage Market Survey (PMMS). The mortgage-buyer’s data revealed, that on average lenders were offering 30-year fixed mortgage loans at a rate of 4.10% this week, down 6 basis points compared to data in the prior week. The average rate on the 15-year fixed conventional loan nudged lower as well, coming out at 3.32% this week, Freddie Mac’s PMMS survey showed. As far as the flexible 5-year adjustable rate mortgage, the average rate declined 2 basis points to 3.14% this week. However, it’s important to note that Freddie Mac’s survey collects responses from lenders in the early part of each week, therefore it doesn’t take into account those economic headlines and events that happen in the latter part of the week, that has the potential to impact mortgage rate movement.
The prospects of an interest rate hike this month got additional boost on Wednesday, as Fed governor Lael Brainard, who was previously viewed as one of the more dovish central bankers, said in a speech at Harvard University in Cambridge, Massachusetts, that raising rates „will likely be appropriate soon”. Brainard added, that „assuming continued progress, it will likely be appropriate soon to remove additional accommodation”.
Another Fed board member, Jerome Powell said in an interview with CNBC on Wednesday, that a monetary tightening at the next policy meeting could be on the cards. According to Powell, „the case for a rate increase in March has come together,”.
Hawkish comments from other Fed policymakers, such as Dallas Fed head Robert Kaplan, New York Fed President William Dudley and San Francisco Fed chief John Williams earlier this week already boosted expectations among investors and traders, that the U.S. central bank will raise rates by a quarter percentage point at the next FOMC meeting. While nobody knows at this point, whether the central bank will actually raise rates this month or not, but the odds are increasing.
Only two pieces of domestic economic reports are slated for release on Friday. The final reading on the ISM Non-Manufacturing Composite Index for February will be released by Markit Economics later today. Analysts believe that business activity likely remained flat at 56.5 last month. Another economic data which is set to be released today is the Markit U.S. Services PMI for February. Analysts expect a figure of 54.0, which would suggest an expansion in the service sector.
On the other hand, several Fed officials are scheduled to speak on monetary policy later today, including Fed Chairwoman Janet Yellen, Fed Vice Chairman Stanley Fischer, Chicago Fed head Charles Evans, Fed governor Jerome Powell and Richmond Fed President Jeffrey Lacker. It goes without saying, that investors will parse these speeches for hints on the timing of the next rate hike.
Low mortgage rates are in danger, as expectations are growing that a monetary tightening will take place this month. The current market environment supports higher mortgage rates, and with the market expecting a rate hike, it’s unlikely to see rates falling back to extremely low levels in the near future.