A decent selloff on Friday after the Jobs Report was followed by a weaker opening yesterday in the bond trading arena. Mortgage prices moved around a bit on Monday only to finish off the day pretty flat. Interest rates today have taken the clues from the last two days anemic pricing and have risen a solid half point since last Thursday’s lows (see chart below).
You can see here what I see: Wall Street pricing really hasn’t changed that much over the weekend, so why are rates freaking out?
The answer is twofold. The first is that Jerome Powell is speaking at the Economic Club in Washington D.C. this afternoon and any awry word from his lips could send long term rates even higher. After that speech, we don’t have much news prior to next Tuesday’s CPI, which will be the latest reading on inflation at the consumer level, where 66% of the GDP comes from. I guess that’s a big deal.
The second is an unfortunate fundamental truth for anyone borrowing money: interest rates are really slow to move downward and really fast to go up. Banks need to make money, and 30 years is a long time to hold on to Jeremy Plouzek’s low interest rates when they could be getting better returns out in the current market. So, they hedge their positions to eke out as much profit as possible. If the next few days in MBS Land are tame, rates should trickle downward again. Stay tuned.