Good Friday AM,

I am all too happy for this holiday shortened week to be over. This has been nothing short of a gut punch to the bond market. Some of the economic data has been stronger, however. Employment, which is the one item to carry us forward, is dismal. The government is providing and is going to provide any amount of needed stimulus to keep the boat afloat. Without question, there is a downside and that will be limited growth or higher taxes (or a combination thereof, which is the likely outcome). When the revenue is somewhat finite, there is no way to use more of it to pay the larger debt service driven by the stimulus without impacting growth. We will either grow less or have to raise the revenue piece of the equation (revenue = taxes by the way).

Back to bonds, the 10-yr is at 1.32% and pretty close to the highs we have seen in a year. I am still a bond bull, but see it is more likely rates will take a bit to recede. The silver lining of this abrupt move up in treasury yields is that due to capacity constraints, most mortgage lenders have had wider margins than typical and as rates rise, capacity constraints are lifted and lenders have not passed that on the full amount of the increase. While the 10-yr yield is up 75bps since the summer, mortgage rates have only felt about .25%. I think and would set the expectation that from here on, any additional increase in yield will likely filter in almost the same amount through to mortgage rates. I do not know if we have found a bottom yet, so please be defensive. You can always lock and float down.

If you recall at the end of Q3, Fannie Mae/Freddie Mac announced an adverse market fee of 50bps to all refinances. In the first 60 days alone, Fannie/Freddie collected a whopping $1.75 billion in this adverse market fee.

Please remain safe and healthy, enjoy the weekend and first, make today great!