Interest rates at 2 month highs before the Fed week


Mortgage rates ended on the week highest Levels in about 2 months as investors marginalized ahead of next week’s Fed announcement.

In other words, investors were selling bonds (among other things), and pressure to sell in the bond market means lower prices and higher rates all other things being equal.

Despite the bad finish, things started good enough. The consumer price index (CPI), a key inflation report, was lower than expected on Tuesday. With inflation being a major consideration for the bond market at the moment, the reaction was obvious. Unfortunately, it was also short-lived.

If we add S&P futures to the above chart, we can see that stocks were also generally moving on the sidelines (i.e. more sellers as buyer).

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While stocks and bonds are never motivated by a single motivation, they definitely share concerns about Fed policy. Bring in next week important Announcing the Fed’s policy, it would make sense to see investors in preparation.

With a particular focus on the bond market, this preparation has probably been going on for some time. The result is the consolidation pattern from the graphic below. The green line just marks the calendar date of next week’s Fed announcement.

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In the graphic above is the start of the pattern no coincidence. It started after the strong job report in early August. The labor market is an important issue for the Fed, and some Fed members said that only one more report like the one from early August would be needed to warrant a move to tighter policy (i.e. not good for rates).

The next report came on September 3rd and once again interest rates rose on the short term ceiling characterized by 10 year Treasury yields in the 1.37-1.38 range. Now, at the end of this week, we’re back on the same cap again.

Bonds have not sought to break this ceiling as the conditions warranting further austerity by the Fed not yet met. Chairman Powell has said on many occasions that the labor market needs to make further progress before the Fed begins to cut its soft bond purchases.

Additionally, the Fed wants to see how Covid and the economy play together after the start of the new school year, and it is just a little early so as not to draw any general conclusions.

The longer-term chart gives a sense of floating interest rates (10-year Treasury yields are often used as a benchmark for other interest rates such as mortgages). They are not in the ultra-low zone associated with the first year of the pandemic, nor are they back in the pre-Covid area. That is, they are probably choose a side in the coming weeks – maybe next week.

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In other news this week, the FHFA and the Treasury Department have one big announcement which affects certain mortgage scenarios. This goes back to previous changes that we discussed again in March and this week. The biggest impact was on loans for investment properties and second homes.

A … do To make it short (this link has additional links for full backstory) the regulatory changes (which forced many lenders to significantly raise the interest rates on these loans) were repealed for at least a year. The implication is that these lenders can start reducing the cost of these loans. The timing and scope of this process will vary depending on the lender. In any case, note that the vast majority of mortgages tied to owner-occupied properties are unaffected.

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