The Market Today

Treasury Yields and Mortgage Rates Continue Ascent

by Craig Dismuke, Dudley Carter


Mortgage Rates Rise to Highest Level Since 2009: Mortgage applications fell further in the week ending April 15, down 5.0% on a 3.0% drop in purchase apps and a 7.7% decline in refis.  While refi apps show the impact most obviously, both categories of applications have been negatively affected by rising mortgage rates.  The average 30-year mortgage rate rose another 7 bps to 5.20%.  Mortgage rates are now up 200 bps over the past four months and are at their highest level since 2009.

Existing Home Sales, Fed Communications: Scheduled for 9:00 a.m. CT, existing home sales for the month of March are expected to drop 4.1% MoM.  A barrage of Fed communication is scheduled today, including the Beige Book report on economic conditions around the Fed districts (1:000 p.m.), San Francisco Bank President Daly (10:25 a.m.), Chicago’s Evans (10:30 a.m.), and Atlanta’s Bostic (12:00 noon).


Fed Doves Disappear As Evans Calls for Restrictive Policy: Chicago President Evans, historically one of the most dovish officials at the Federal Reserve, speculated Tuesday that the fed funds rate is “probably…going beyond neutral.” Evans said, “By December, we’re going to get more data on the micro aspects of the high inflation, price increases, how much is it broadening out.” “By that time, we’re at neutral,” which he estimates is between 2.25% and 2.50%, “and to the extent we don’t see it coming down, we’re going beyond neutral, absolutely.”

Bostic Strikes More Cautious Tone on Tightening Pace: Atlanta Fed President Bostic supports the Fed’s plans to move policy closer to neutral but sounded a bit more cautious about the pace than some of his colleagues. Bostic agrees that it’s imperative for the Fed to get inflation under control, but said he is, “…kind of uncomfortable to declare with that much certainty that I know exactly what’s going to happen such that I can tell you exactly how fast or when we should get exactly to neutral or even if we should go beyond it.” When asked about the need for a 75-bp hike at a coming meeting, an idea broached by President Bullard on Monday, Bostic said, “Any action is actually possible, although it’s not something that’s really on my radar right now.”


Equities and Inflation Expectations Rise, Despite Shorter Yields Leading Sharp Increases across the Curve: The tech sector led a sharp rally for the major equity indices in what was an especially interesting day on Wall Street. The Nasdaq jumped 2.2% and tech names helped drive the S&P 500 up 1.6%, both marking the largest single-day gains in over a month. The breadth of the strength, however, was broad with every S&P 500 sector, excluding energy, gaining ground on the day. Chinese economic data released this week confirmed that activity has slowed amid the widespread lockdowns, dynamics that drove the PBOC to announce a litany of support measures and were a key factor in the IMF cutting its global growth outlook for this year from 4.4% to 3.6%. Analysts pointed to the dour growth outlook as one explanation for the more than 5% drop in crude Tuesday. Notably, the impressive equity gains were even more exceptional considered alongside a rapid rise in global yields. Leading Tuesday’s global ascent, the 2-year Treasury yield rose 14.4 bps to 2.59%, its fourth biggest increase since March 2020 and highest close since January 2019. The 5-year yield jumped 12.7 bps to 2.92%, its highest finish since November 2018. The 10-year yield added 8.3 bps to 2.94%, its highest close since December 2018. The spread between the 2-year and 10-year yields tightened for just the second time in eleven days, falling more than 6 bps to 33.6 bps. Interestingly, considering the jump in shorter yields and Fed calls for “expeditious” tightening (more above), longer-term market-based inflation expectations actually rose. Inflation expectations for the five years beginning five years from now added 1.4 bps to 2.57%, the highest level since August 2014.

Treasury Yields Pull Back after Setting New Cycle Highs in Early Asian Trading: Equity futures were weaker for most of the overnight session but recently rose to session highs and Treasury yields pulled back after initially extending yesterday’s surge at the open of trading in Asia. Despite a newsworthy 27% plunge in shares of Netflix, precipitated by discouraging subscriber statistics, equity index futures were up around 0.4% at 7:15 a.m. CT amid mixed global trading. Chinese stocks dropped 1.6% after the PBOC surprised markets by keeping key one-year and five-year lending rates unchanged. Europe’s Stoxx 600 struggled out of the gates but managed to rally 1.0% halfway through Wednesday’s session. Treasury yields initially rose but retreated after touching new cycle highs. The 10-year yield grazed 2.977% in early Asian trading, its highest level since notching a tick near 3.05% on December 3, 2018, but was 5.6 bps lower on the day at 7:30 a.m. CT and back near 2.88%. The 5-year yield climbed as high as 2.95% before falling back to 2.86%, a 5.3-bp decline from Tuesday’s close. The 2-year yield slipped 1.8 bps to 2.57% after rising to 2.62% overnight. For those tracking the historically fast depreciation in the Japanese yen, the currency recovered marginally from a 20-year low against the Dollar even after the Bank of Japan offered to purchase government bonds to protect the 0.25% upper band of its yield curve control policy range. Japan’s 10-year yield rose 0.9 bps to close Wednesday at 0.248%.

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