Hold on to your hats, this could be a wild week in the bond market and for the mortgage rate trend. After a much more robust than expected Jobs Report last Friday that showed higher than expected wage inflation, bond prices fell, which in turn led to higher mortgage rates. Average mortgage rates are now pushing the high end of their 52-week range.
This trend could continue this week as we have an important auction of 10-Year Treasury bonds on Wednesday and the Consumer Price Index (CPI) reporting hot on its heels on Thursday. We don’t believe inflation has peaked so any new reports showing higher inflation will continue to spark volatility in markets and push rates higher.
Speaking of the CPI, consumer inflation has been extremely elevated and consistently exceeded expectations, including December’s monthly gains of 0.5 percent overall. January’s expectations are for more of the same, another 0.5 percent increase. Annual rates are seen accelerating to 7.3.
One indicator I like to follow to help understand the trend for mortgage rates is the yield percentage of the 10-year Treasury bond; when it goes up, mortgage rates tend to follow, when it goes down, rates improve. So, the current threshold I’m watching is 1.97 on the 10-year. If it breaks above that, we may see mortgage rates trending higher for longer, into spring and summer.
Meanwhile, the housing market remains strong with homebuyer demand continuing to be elevated, even as inventory of homes on the market remains squeezed.
We end the week on Friday with a look at Consumer Sentiment. Consumer buying accounts for two-thirds of the economic activity in this country, so we always keep an eye on consumer buying behavior for an indication of the trend for the nation’s economy. Currently, consumer sentiment has been sitting at long-term lows and virtually no improvement is expected for February, at a consensus of 67.5 versus 67.2 in December.
I’ll be keeping an eye on all of it for you and will report back next week.
