Good Monday AM from your Hometown lender,

This is a very light week for economic data…

We are left to our own devices of assumptions and technical trades. The latter is at least somewhat calculatable, and I am hoping markets follow that path. That is what we are seeing today. I shared last week that we had hit the top of the trading channel, and it was likely that we would start to head back down. The 10-yr has improved from 4.50 to 4.36% today and has made a stop. Why stop here? It is the same argument of technical trading. Below 4.35% opens the next lower channel and for the moment, markets are not ready to give that up. Tomorrow Mr. Powell will be speaking, but he will not address monetary policy at all so it’s a non-issue. Later in the week there is some housing data but there is really nothing in the economic calendar that bears watching other than the weekly jobless claims and some PMI data on Thursday. For the moment, there is little urgency to locking at the moment.

Here is a little snippet from Matt Graham… 

A bit of extra reading…

There are a few forces at play that are push/pulling mortgage bonds as well as the 10yr Treasury. Some of the stuff going on is “good for bonds” – but that really means short term bonds like the 2yr, not the 10yr or long term bonds like mortgage bonds. One example of this is the barrage of threats from the White House to fire Fed Chair Jerome Powell. Traders are buying short term bonds in a strategy that has been dubbed the “Powell hedge”, where traders are buying 2yr Treasuries and selling 10yr bonds. The expectation is that Powell’s successor would support Trump’s desire for lower rates. However, if/when the Fed cuts rates, especially if it is done quickly or when not needed, it will push down short-term yields (but NOT longer term, like mortgage and the 10yr). Easier monetary policy, especially mixed with the idea that the Fed has lost its independence, could stoke inflation concerns… which drives up yields on the 10yr and pushes prices down on mortgage bonds. If Trump were to try and follow through to get rid of Powell early, it would likely be bad for mortgage rates.

For the folks in the back…

Fed rate cuts do NOT mean mortgage rates will fall, and I come with receipts. Go back to September BEFORE the Fed cut rates a half point… rates were in the low 6’s for con/con and high 5’s for govvies. Then the Fed cut rates a half point, plus another quarter in November and another in December. That means the Fed funds rate is a full point lower now than at that point in September… but where are mortgage rates? 🤔 How ’bout that 10yr yield? The reason that anticipated rate cuts plays into Treasury yields and mortgage backed securities is complicated, but has more to do with the idea that a Fed that is cutting rates is doing so because there is little threat of inflation. Remember that the pandemic low mortgage rates were as much or more caused by quantitative easing, the Fed buying up mortgage bonds, than rate cuts.

Here’s some good news:

Millennials are the only generation with a growing interest in buying a home this spring, despite high borrowing costs and affordability pressures, according to a new Realtor.com survey. The share of Millennials planning to buy a home in the next six months rose to 23%, up from 15% in September 2024.

Stay safe and make today great!