Last week while many of us were playing hooky and taking some time off for summer vacation combined with the Fourth of July holiday, the bond market was working overtime and rates rose more than they have since March of this year. Now, don’t get me wrong, rates are still great but they did trend a little higher; according to the weekly survey by Freddie Mac by about .08 percent for the average 30-year fixed mortgage. So, what happened? And, what’s next?
Put simply, bond yields in Italy, France, and Germany started to rise last Thursday after an exceptionally weak French bond auction. That coincided with the release of the minutes from the European Central Bank (ECB) that confirmed it is getting closer to reducing asset purchases, which have been artificially propping up bond prices. With the news that their ‘crutch’ will slowly be removed, the markets began what some call a ‘tantrum’ or overreaction.
How does that affect the U.S. bond market? Well, our bonds must remain competitive on the global market and were forced to rise in sympathy. The rise also triggers mortgage rates to go up since mortgage rates are based on mortgage bond pricing.
So far this week, the bond market has been relatively quiet. We’re keeping an eye on the yield for the 10-year Treasury bill. Most experts we follow are watching the 2.385 yield as the line in the sand. If we can stay below that level we have more hope for rates improving, if the yield goes above 2.385 we could be in for a longer period of rising rates. Only time will tell!
If you are considering locking in a rate soon, please let us know and we can keep an eye on the markets and do our best to lock you in at a good time.