The morning after continues towards the path of least resistance, that being higher yields and worsening Austin mortgage pricing. Certainly the economic fundamentals of a recovering economy, continiously evolving fiscal policy which we feel is more borrowing and less monetary stimulus, and a reluctance of our foreign partners to take on our debt/risk are the heavy weights in this move to higher yields.
In this current enviornment, markets are more complex than ever and the flow of money with it’s associated risk can be powerful and detrimental. The trend is changing and even though we don’t like it, a “new normal” for Austin mortgage rates is in the works.
The large channel dating back to last year, which gave us a series of lower highs and lower lows in yield has now been breached. Phase two was the triangle formation that was trapped between 3.29% and 3.81%, winding itself tighter and tighter headed for a breakout. That breakout happened yesterday and if you remember our comments a couple of weeks ago, our bias carried a high probability of that breakout leading to higher yields. Wished we were wrong.
Damage done, it’s time to move on and get back to business. Earlier today, Weekly Unemployment Claims fell 14K to 422K. Continuing Claims also fell. Both are not indicative of a trend but a better reflection of improving weather across the country and government consensus hiring. Bill Gross, often refered to as the “bond god”, is talking about how he’s bearish on bonds and feels that stocks are a better buy. He also commented that he expects to see the 1 year TBill rate at 1.25% to 1.50% within a year. Today’s rate is .41%.
Currently, the 10 year note is off 14/32’s (yield 3.87%), mortgage backs are off 16/32’s, and stocks are on fire, up 100 points on the big board. With the upward trend gaining momentum, the 10 year note is on a clear path towards 4.0% plus. Best case on any rebound/reflex rally is back to 3.75%/3.77%.
We all know why the trend is higher but here’s some of the factors that could stop the selling and improve Austin mortgage pricing:
- One would be a good 7 year note auction today (12:00 cst).
- Two is month-end buying by hedge funds and money managers to extend duration.
- Three being weaker than expected Employment Report next week. The market is looking for a gain of 200K.
Markets like this are very dangerous. They can travel to higher yields beyond where you think they can. They can stay over sold for long periods of time. The bottom will not be put in until the last person sells. On the bright side, markets do not go down forever, it just feels like it. Hang in there.