Hello everyone and welcome back to the Mortgage Rundown.
Today we are going to talk about what’s happening in the capital markets.
Rates should be at the top of everyone’s mind. The 10yr Treasury is pushing up against 3.03% which is a key level of resistance.
This shows the 10yr Treasury since August of 2011. As you can see the 10yr has bumped against the 3.03% resistance level twice before in 2013 and as of today is sitting at 3.02%.
The upward pressure in rates is coming from the general belief that rates will continue to rise thanks to the tax overhaul, an unemployment rate below 4% and leading indicators on inflation showing it will likely continue to climb.
If the 10yr does breakout above 3.03% and stay there then it would likely head to 3.20 to 3.25%, as a new level of resistance would need to be established.
The thing that is keeping rates down is concerns over valuations in the stock market as well as the rising demand of US debt at a 3% yield.
The Federal Reserve is still on track to raise rates two more times this year but the market is pricing in a 49% chance of three more hikes in 2018. The market believes the Fed is going to be more active in fighting future inflation with more rates changes this year. If the Fed acknowledges they may need to raise rates faster, then the 10yr will rise well above 3%. However if the Fed sticks with a total of three rates increases for all of 2018, then it should help keep the 10yr at or below 3%.
In the coming weeks you should keep an eye on the following items:
- Next week’s FOMC meeting likely won’t bring an interest rate increase but what direction will their guidance and the dot plot push the market
- The payroll report for April comes out next Friday right after the Fed which also could push rates around even further
- And lastly did I mention the FOMC meeting next week. I would expect a lot of rate volatility given the lead up to this important and pivotal meeting.
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