The Market Today

Mortgage Rates Continue to Climb


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

Mortgage Rates Continue to Climb: Mortgage rates continued their ascent in the week ending February 4, with the 30-year rate rising another 5 bps to 3.83%.  The rate is now 50 bps higher this year, alone, and 98 bps above its cycle-low back in late 2020.  Rising rates have contributed to weakness in applications for refis and volatility in purchases apps.  Overall applications for the week fell 8.1% after climbing 12.0% in the previous week.  Refi apps fell 7.3% while purchase apps disappointingly fell 16.7%. While rising rates will be a concern for the pace of housing activity, purchase apps are only down 2.1% YoY and still point to stable sales (Chart of the Day).

Fed Communications, Inventories, Treasury Supply: Fed Governor Bowman (9:30 a.m. CT) and Cleveland Bank President Mester (11:00 a.m.) are scheduled to speak today. Markets have been particularly sensitive to Fed communications with an evolving outlook for rates.  At 9:00 a.m., the December wholesale inventories report will be revised.  Also today, Treasury will sell $37 billion 10-year notes.


TRADING ACTVITY

Stocks Rallied Even As Treasury Yields Rise to New Cycle-Highs: Stocks caught a bid Tuesday with broad-based gains lifting the Dow by 1.1% as tech strength boosted the Nasdaq by 1.3%. The S&P 500 rose 0.8% with eight of its eleven sectors closing in positive territory. Cyclical shares led the way with tech and financials joining in with gains of more than 1%. The banks subsector rose just under 2% as Treasury yields reached new cycle-highs across the curve. Despite a solid auction of 3-year notes, shorter Treasury yields led Tuesday’s jump with investors expecting another firm monthly inflation print on Thursday. The 2-year yield rose 5.1 bps to 1.34% with the 3-year yield closing 5.3 bps higher at 1.58%. An auction of $50 billion of 3-year Treasuries stopped through with a record-low share awarded to the primaries as interest from indirects matched its all-time high. The 5-year yield climbed 5.2 bps to 1.82% and the 10-year yield added 4.7 bps to 1.96%, both closing at the highest levels since July 2019.

Stocks Extend Gains Wednesday as Yields Take a Breather: When current yield levels are contextualized, it would appear that every next move up would meet more resistance. After rising rapidly this year in response to speculation historic inflation could force central banks to tighten policy aggressively, sovereign bond yields have pulled back across the board on Wednesday. The rally (in price) began in European trading with declines across the Atlantic outpacing a slightly smaller decline for Treasuries. Another ECB official indirectly pushed back against the market’s repricing for faster rate increases after President Lagarde sounded a bit more hawkish at last week’s meeting. The U.K.’s 10-year yield declined 5.3 bps while Germany’s fell 4.4 bps. Germany’s 10-year yield had risen in eleven consecutive sessions to 0.26%, its longest string of increases on record and its highest level since January 2019. Treasury yields were also lower at 7:30 a.m. CT and the curve was flattening. The 2-year yield pulled back 1.8 bps to 1.32% and the 5-year yield fell 3.0 bps to 1.79%. The 10-year yield was 2.9 bps lower at 1.93% with a $37 billion auction scheduled for noon CT. Equities remained resilient amid rising rates as tech licked it wounds and led broad gains around the globe. Following gains of more than 1% across both Asia and Europe, Nasdaq futures were 1.3% higher and the S&P 500 gained 0.9%.


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