Mortgage and refinance rates today, Feb. 27, and rate forecast for next week

Today’s mortgage and refinance rates 

Average mortgage rates fell a little or held steady yesterday (Friday). Unfortunately, it was the only glimmer of light in a gloomy week that saw rises — including a sharp one — on every other day.

Right now, there seems to be no end in sight to these rate increases. Of course, we’re almost bound to see an occasional fall, because that’s how markets work. But sustained downward movement appears unlikely, and I’m expecting that mortgage rates will keep rising next week. Read on for more details.

Find and lock a low rate (Feb 27th, 2021)

Program Mortgage Rate APR* Change
Conventional 30 year fixed 3.062% 3.065% -0.13%
Conventional 15 year fixed 2.587% 2.596% -0.11%
Conventional 20 year fixed 2.875% 2.882% -0.13%
Conventional 10 year fixed 2.474% 2.493% -0.13%
30 year fixed FHA 2.87% 3.549% -0.1%
15 year fixed FHA 2.539% 3.121% -0.16%
5 year ARM FHA 2.5% 3.213% -0.03%
30 year fixed VA 2.383% 2.555% -0.36%
15 year fixed VA 2.25% 2.571% Unchanged
5 year ARM VA 2.5% 2.392% Unchanged
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.

Find and lock a low rate (Feb 27th, 2021)


COVID-19 mortgage updates: Mortgage lenders are changing rates and rules due to COVID-19. To see the latest on how coronavirus could impact your home loan, click here.

Should you lock a mortgage rate today?

If I were still floating, I’d lock my rate right away. Of course, there’s always a possibility of rates falling back. But that currently looks a slim one. And the chances of continuing rises seem much stronger. Read on to discover why.

So my recommendations remain:

  • LOCK if closing in 7 days
  • LOCK if closing in 15 days
  • LOCK if closing in 30 days
  • LOCK if closing in 45 days
  • LOCK if closing in 60 days

However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So be guided by your gut and your personal tolerance for risk.

Compare top lenders

What’s moving current mortgage rates

The forces that are driving rates higher are the same ones we reported last week. The vaccination program and dwindling COVID-19 infection rates are creating optimism that an economic recovery will be upon us sooner than many expected. Indeed, we’re already seeing some better economic data. And a better economy goes hand-in-hand with higher rates.

But what we last week listed as a secondary factor may have now turned into the primary one. And that’s the fear of future inflation.

Unfortunately, such fears also tend to push mortgage rates higher.

Fear of inflation

And you can see why. Imagine you’re an investor who buys a mortgage bond (a mortgage-backed security or MBS) with a fixed rate of 3% for 30 years. That means your yield (income) is fixed, too.

And now imagine how sick you’d feel if next year (or in 10 years’ time) serious inflation took hold, and you were suddenly seeing inflation and interest rates soaring up to 10% or even higher — while you were still getting 3%.

This isn’t impossible fiction. Between 1978 and 1990, the average rate for a 30-year, fixed-rate mortgage never dipped below 10%, measured annually. And, in October 1982, that rate peaked at 18.45%, according to Freddie Mac’s archives.

It’s not hard to imagine how petrified investors are of having their money tied up in fixed-rate securities if there’s any likelihood of future inflation.

Still a slim possibility of falls

Of course, nothing’s certain in markets. And some disastrous news could come out of nowhere and kill both optimism and its accompanying fear of inflation.

Indeed, earlier this week, The New York Times reported on a new variant of SARS-CoV-2 (the virus that causes COVID-19) that’s currently circulating in New York City. And some scientists worry that it might prove more resistant to current vaccines than existing strains are.

That research is yet to be peer-reviewed. And it may turn out to be nothing. But it’s an example of the sort of news that could turn markets and mortgage rates around. The trouble is, the chances of such an event arising before your closing date don’t seem high.

Economic reports next week

Next Friday brings the official, monthly, employment situation report. And that’s arguably the most important economic data of all at the moment. So markets may be moved by those figures

They’re less likely to be affected by the other reports this week. However, any data can have an impact if it varies significantly from expectations.

Here are next week’s main economic reports:

  • Monday — January construction spending. Also February auto sales. Plus the February manufacturing index from the Institute for Supply Management (ISM)
  • Wednesday — February ISM services index
  • Thursday — Weekly new claims for unemployment insurance.
  • Friday — February employment situation report, including nonfarm payrolls and the unemployment rate.

Watch out, too, for top Federal Reserve officers’ speaking engagements. The Fed’s walking a fine line at the moment between keeping the recovery on the road and not stoking inflation fears. So investors are paying close attention to their remarks.

Find and lock a low rate (Feb 27th, 2021)

Mortgage interest rates forecast for next week

Unfortunately, I can only predict rising rates this week. The pace of increases may slow and we might even see some small and occasional falls. But, overall, it’s hard to imagine the recent trend reversing.

Mortgage and refinance rates usually move in tandem. But note that refinance rates are currently a little higher than those for purchase mortgages. That gap’s likely to remain constant as they change.

How your mortgage interest rate is determined

Mortgage and refinance rates are generally determined by prices in a secondary market (similar to the stock or bond markets) where mortgage-backed securities are traded.

And that’s highly dependent on the economy. So mortgage rates tend to be high when things are going well and low when the economy’s in trouble.

Your part

But you play a big part in determining your own mortgage rate in five ways. You can affect it significantly by:

  1. Shopping around for your best mortgage rate — They vary widely from lender to lender
  2. Boosting your credit score — Even a small bump can make a big difference to your rate and payments
  3. Saving the biggest down payment you can — Lenders like you to have real skin in this game
  4. Keeping your other borrowing modest — The lower your other monthly commitments, the bigger the mortgage you can afford
  5. Choosing your mortgage carefully — Are you better off with a conventional, FHA, VA, USDA, jumbo or another loan?

Time spent getting these ducks in a row can see you winning lower rates.

Remember, it’s not just a mortgage rate

Be sure to count all your forthcoming homeownership costs when you’re working out how big a mortgage you can afford. So focus on your “PITI” That’s your Principal (pays down the amount you borrowed), Interest (the price of borrowing), (property) Taxes, and (homeowners) Insurance. Our mortgage calculator can help with these.

Depending on your type of mortgage and the size of your down payment, you may have to pay mortgage insurance, too. And that can easily run into three figures every month.

But there are other potential costs. So you’ll have to pay homeowners association dues if you choose to live somewhere with an HOA. And, wherever you live, you should expect repairs and maintenance costs. There’s no landlord to call when things go wrong!

Finally, you’ll find it hard to forget closing costs. You can see those reflected in the annual percentage rate (APR) you’ll be quoted. Because that effectively spreads them out over your loan’s term, making that higher than your straight mortgage rate.

But you may be able to get help with those closing costs and your down payment, especially if you’re a first-time buyer. Read:

Down payment assistance programs in every state for 2020

Compare top lenders

Mortgage rate methodology

The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.

Source: themortgagereports.com

MBS RECAP: Surprisingly Swift Selling in The Bond Market; What’s Next?

This week has been one of the most surprising selling sprees in bonds in the post-covid era.  Just when you think we’ve surely seen enough selling to bring buyers in, it’s right back to new long-term high yields and significantly lower MBS prices.  That bounce is coming, to be sure, but it’s a risky proposition to bet on it.  Moreover, when it happens, it changes nothing about the broader trend toward higher yields that’s been intact for more than 6 months.  This week just happens to offer a more abrupt adjustment to the pace of that trend.

Econ Data / Events

  • Fed MBS Buying 10am, 1130am, 1pm

  • Markit PMI Composite 58.8 vs 58.7 prev

  • Existing Home Sales 6.69m vs 6.61m f’cast, 6.65m prev

Market Movement Recap

08:28 AM

Treasuries opened modestly stronger in Asia, but 10yr yields failed at 1.28% again.  Steady-to-stronger data in Europe pushed yields higher heading into the domestic session.  10yr is up 1.4bps at 1.311% and 2.0 UMBS are down nearly an eighth.

10:25 AM

After an underwhelming attempt at a friendly bounce after 9:30am, bonds are on the back foot again and MBS are quickly down to new lows (and 10yr up to new highs of 1.336+).  There are no new market movers in play in terms of data or headlines (but big trades hit TSY futures at 10:08am and added to the weakness).

12:23 PM

1.338 ceiling held up against multiple breakout attempts but finally gave way a short while ago.  Yields are doing what yields do after a technical breakout (moving higher).  Currently over 1.35%.  MBS aren’t happy about it.  2.0 coupons are down 3/8ths and the increasingly relevant 2.5 coupons are down almost a quarter point.

02:51 PM

More minutes on the clock, more bond selling.  Highest highs of the day shortly after the last update with 10yr hitting 1.36+.  UMBS 2.0 coupons were as low as 101-16 (101.5) briefly.  Both have bounced modestly since then, but the damage is done as far as rate sheets and reprice potential are concerned.


MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

MBS

UMBS 2.0

101-20 : -0-11

Treasuries

10 YR

1.3480 : +0.0610

Pricing as of 2/19/21 3:20PMEST

Today’s Reprice Alerts and Updates

1:18PM  :  ALERT ISSUED: If You Haven’t Seen a Reprice Yet, You Probably Will

12:10PM  :  ALERT ISSUED: Negative Reprice Risk Increasing

10:17AM  :  ALERT ISSUED: Negative Reprices Already A Possibility

8:35AM  :  Slightly Weaker After Another Failure at 1.28% 10yr Floor


MBS Live Chat Highlights

David Gaffin  :  “For what its worth it is doing serious damage to MY agenda”

Matt Graham  :  “but if they see rates doing damage to their agenda, then things could easily change”

Matt Graham  :  “Good question, but they don’t seem too concerned about rising rates for now. Moreover, they were exceptionally cool on the idea of YCC based on comments over the past few months”

David Gaffin  :  “MG- may have missed this discussion, but will the rapid rise in rates add ammunition for the Fed to use yield curve control in buying?”


Economic Calendar

Time Event Period Actual Forecast Prior
Friday, Feb 19
9:45 PMI-Manufacturing (Markit) * Feb 58.5 58.5 59.2
10:00 Exist. home sales % chg (%)* Jan +0.6 -1.5 0.7
10:00 Existing home sales (ml)* Jan 6.69 6.61 6.76

Source: mortgagenewsdaily.com

MBS Day Ahead: It Was a Trap… Don’t Expect Stocks to Save Us

MBS Day Ahead: It Was a Trap… Don’t Expect Stocks to Save Us

Yesterday saw yields hold at just slightly lower highs on an intraday basis, thus offering a glimmer of hope for a bond bounce.  We discussed the risk that this was a trap, and so far today, it looks like it was.  10yr yields are over 1.4% and UMBS 2.5 coupons are now the only game in town.  Where is that giant squid guy from Star Wars when you need him?

20210224 open.png

The bond market weakness is sharper and more relentless than many market watchers anticipated.  One common topic of conversation among those hoping for a bounce is the interplay between stocks and bonds.  Late 2018 is fresh in our minds with widespread belief that “high rates” precipitated a stock sell-off which, in turn, helped rates move lower.

I won’t say “that’s not what happened,” because that dynamic was in play.  But I will say a few other things.  First off, that wasn’t the whole story in 2018.  There was a ton of momentum behind “global growth concerns.”  Much like 2015, late 2018 brought a mini or “stealth” contraction for the global economy–especially manufacturing in Europe.  It also marked the end of the tax bill sugar high for US equities markets.  

What’s the point of all this?  Just a reminder/warning/etc to not place undue hope on “high” 10yr yields (if you can call 1.4%+ “high” in the bigger picture) to do profound damage to the stock market.  Scarier spikes than this have generally failed to do so.  2018 was an exception, and one that probably gets too much credit in our worldview because it was the most recent example.

20210224 open2.png


MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

MBS

UMBS 2.5

103-21 : -0-11

Treasuries

10 YR

1.4250 : +0.0610

Pricing as of 2/24/21 9:47AMEST

Source: mortgagenewsdaily.com

MBS Week Ahead: Battle to Find a Rate Ceiling Continues

Bond yields have been surging higher in February with last week bringing the sharpest losses so far.  The move has surprised more than a few market participants.  To be sure, the pace of selling doesn’t seem to fit with the economic reality at first glance.  Moreover, the higher yields have gone, the more expectations have increased for a technical correction.  In other words, we have to find a ceiling soon, even if it’s only temporary.  It looked like we found that ceiling in the middle of last week, but Friday saw yields break to new highs.  Now as the new week begins, we have more new highs (overnight) and more new hope for a ceiling bounce as bonds are rallying early.

20210222 open.png

On the data front, this week’s headliners include Durable Goods, Core PCE, and the 5/7yr Treasury auctions.  With the exception of Wednesday’s 5yr auction, all of that happens on the last 2 days of the week.  Incidentally, those are also the last 2 trading days of the month.  That means we could see a glut of trading momentum in one direction or the other, depending on how the rest of the week trades and how much “month-end” trading is left to be done.  


MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

MBS

UMBS 2.0

101-17 : -0-06

Treasuries

10 YR

1.3470 : +0.0020

Pricing as of 2/22/21 10:13AMEST

Tomorrow’s Economic Calendar

Time Event Period Forecast Prior
Monday, Feb 22
10:00 Leading index chg mm (%) Jan 0.5 0.3
Tuesday, Feb 23
9:00 CaseShiller 20 yy (% ) Dec 9.9 9.1
9:00 CaseShiller 20 mm SA (%) Dec 1.3 1.4
9:00 Monthly Home Price yy (%) Dec 11.0
9:00 Monthly Home Price mm (%) Dec 1.0
10:00 Consumer confidence * Feb 90.0 89.3
Wednesday, Feb 24
7:00 MBA Purchase Index w/e 299.5
7:00 MBA Refi Index w/e 4337.0
10:00 New Home Sales (%) (%)* Jan 2.1 1.6
10:00 New Home Sales (ml) Jan 0.855 0.842
13:00 5-Yr Note Auction (bl)* 61
Thursday, Feb 25
8:30 GDP Prelim (%) Q4 4.2 4.0
8:30 Durable goods (%)* Jan 1.1 0.5
8:30 Core CapEx (%)* Jan 0.7 0.7
8:30 Jobless Claims (k) w/e 838 861
10:00 Pending Sales Index Jan 125.5
10:00 Pending Home Sales (%) Jan 0.0 -0.3
13:00 7-Yr Note Auction (bl)* 62
Friday, Feb 26
8:30 Core PCE Inflation (y/y) (%)* Jan 1.4 1.5
9:45 Chicago PMI * Feb 61.1 63.8
10:00 Sentiment: 5y Inflation (%) Feb 2.7
10:00 Sentiment: 1y Inflation (%) Feb 3.3
10:00 Consumer Sentiment (ip) Feb 76.5 76.2

Source: mortgagenewsdaily.com

MBS RECAP: Rates Are In Big Trouble, But Why?

The rate reset continues.  Just when you thought 10yr yields surely couldn’t go any higher, they did.  New intraday highs of 1.394% in 10yr yields, and closing near the 1.37% inflection point.  MBS aren’t happy about it.  When rates spike this quickly, MBS typically have to undergo a fast and painful repositioning of relevant coupons.  The current iteration has seen 2.5 UMBS take the place of 1.5 coupons in just a few short weeks.  But even 2.5 coupons got killed today.  Multiple lenders repriced for the worse–some of them more than once.

Econ Data / Events

  • Fed MBS Buying 10am, 1130am, 1pm

  • Leading Economic Indicators 0.5 vs 0.5 f’cast

Market Movement Recap

08:40 AM

Heavy selling overnight in Asia.  10’s hit highs of 1.394.  Better buying in Europe despite stronger data.  Early domestic traders also looking more willing to buy.  Yields only 1bp higher now, give or take, trading around 1.35%.  UMBS 2.0 coupons down an eighth after being down more than twice as much to start.

12:33 PM

Ample volatility during domestic session with MBS taking the worst of it (relative to Treasuries).  MBS now at lows of the day as Treasuries inch back toward highs.  2.0 UMBS are ceding relevance to 2.5 coupons.  both are down 10 ticks (.31) on the day.  10yr yields are up 1.73bps at 1.357%.

01:54 PM

Just when you think “surely we’ve seen enough selling that bonds HAVE TO bounce soon,” here comes more selling!   MBS prices are pushing down to lower lows and 10yr yields are up another bp from last check at 1.365%.  Feb is now the worst month for bonds since Nov 2016 (presidential election reaction).

04:30 PM

MBS managing to keep losses inside of half a point on the day with 2.5 coupons “only” down 3/8ths.  10yr yields are up scant 3bps to 1.37%–not nearly as bad as the MBS sell-off (in terms of yield, MBS would be up roughly 7bps today by comparison).


MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

MBS

UMBS 2.0

101-08 : -0-14

Treasuries

10 YR

1.3670 : +0.0220

Pricing as of 2/22/21 4:58PMEST

Today’s Reprice Alerts and Updates

3:19PM  :  ALERT ISSUED: Negative Reprices Basically Guaranteed; Round 2 In Some Cases

12:37PM  :  ALERT ISSUED: Negative Reprices Becoming More Likely

11:33AM  :  ALERT ISSUED: Negative Reprice Risk Increasing

8:39AM  :  Much Weaker Overnight, But Trying to Make a Comeback


MBS Live Chat Highlights

Mark Ingram  :  “When friends who are seasoned salespeople started asking “How can I get into the mortgage business?” I knew things were about to reverse..”

Timothy Baron  :  “It’s official. This sucks.”


Economic Calendar

Time Event Period Actual Forecast Prior
Monday, Feb 22
10:00 Leading index chg mm (%) Jan +0.5 0.5 0.3

Source: mortgagenewsdaily.com

MBS RECAP: No Easy Answers Today; Still Anyone’s Game

Bonds were weaker earlier in the trading session but rallied back mid-morning before coasting mostly sideways into the close.  Bond bulls were frustrated by the inability to break the floor at 1.27-1.28% in 10yr yields.  Bond bears were frustrated by the clear unwillingness to explore new highs compared to yesterday.  In other words, it was an “inside day” with lower highs and higher lows, and part of a 2-day consolidation following the highest yields in 11+ months.  Such consolidations can be preludes to big bounces OR renewed selling pressure.  There weren’t any major clues in today’s session about which side is going to win.  

Econ Data / Events

  • Fed MBS Buying 10am, 1130am, 1pm

  • Jobless Claims 861 vs 765 f’cast, 848k prev

  • Import Prices 1.4 vs 1.0 f’cast, 1.0 prev

  • Export Prices 2.5 vs 0.7 f’cast 1.3 prev

  • Housing Starts 1.58m vs 1.658m f’cast, 1.68m prev

  • Building Permits 1.881m vs 1.687m f’cast, 1.704 prev

Market Movement Recap

08:41 AM

Treasuries started stronger in Asia as trading picked back up after Lunar New Year holiday closures.  Yields have been rising modestly since then and stocks have been sliding.  8:30am econ data passed without fanfare leaving 10yr yields 1.5bps higher at 1.297 and UMBS 2.0 coupons nearly an eighth lower.

10:57 AM

Bouncing back in the other direction now after AM weakness took yields to highs by 10:15am.  MBS had been down nearly a quarter of a point, but have bounced back by an eighth (down only an eighth now).  

02:54 PM

Friendly bounce continued, more so for MBS than Treasuries, but both are near unchanged levels currently.  Stocks recovered a bit as well, so we can continue to watch the “accommodation” trade (i.e. stocks and bond yields moving in opposite directions as the market reacts to changes in Fed policy potential.  This is far from the only game in town, but it could be a factor).

04:31 PM

Slight weakness heading into the after hours close, but not enough to make a case for any new momentum.  The takeaway remains equivocal with a clear rejection of the stronger levels, but no threatening move back to the weaker levels.  


MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

MBS

UMBS 2.0

101-30 : -0-03

Treasuries

10 YR

1.2970 : -0.0020

Pricing as of 2/18/21 4:41PMEST

Today’s Reprice Alerts and Updates

11:00AM  :  Reprice Risk Fading as Bonds Bounce

10:19AM  :  ALERT ISSUED: Negative Reprice Risk Increasing For Some Lenders

8:40AM  :  Little-Changed at Slightly Weaker Levels After Data


Economic Calendar

Time Event Period Actual Forecast Prior
Thursday, Feb 18
8:30 Export prices mm (%) Jan 2.5 0.7 1.1
8:30 Import prices mm (%) Jan 1.4 1.0 0.9
8:30 Building permits: number (ml) Jan 1.881 1.678 1.704
8:30 Housing starts number mm (ml) Jan 1.580 1.658 1.669
8:30 Philly Fed Business Index * Feb 23.1 20.0 26.5
8:30 Build permits: change mm (%) Jan 10.4 4.2
8:30 House starts mm: change (%) Jan -6.0 5.8
8:30 Jobless Claims (k) w/e 861 765 793
Friday, Feb 19
9:45 PMI-Composite (source:Markit) * Feb 58.7
10:00 Exist. home sales % chg (%)* Jan -1.5 0.7
10:00 Existing home sales (ml)* Jan 6.61 6.76

Source: mortgagenewsdaily.com

MBS Day Ahead: Bond Buyers Sitting on Hands; Which MBS Coupon Now?

We talked about momentum indicators being ‘oversold’ yesterday–a possible prelude to a friendly bounce in bonds.  If that narrative is going to play out, it’s running out of time very quickly.  There was some potential for a positive outcome early in the overnight session, but as the trading day progresses, bonds are moving steadily back toward their weakest levels.  Those with the strongest stomachs can still hold out hope that 10yr yields have temporarily topped out somewhere under 1.33%, but all bets are off if that ceiling breaks today (and we’re only 2bps away at 9am).

20210218 open2.png

If the pace of bond market weakness has caught you off guard in 2021, you’re not alone.  Many analysts and traders are struggling to justify current levels.  In their defense, it’s very easy to get caught up in a search for obvious, short-term motivations.  After all, that’s what’s usually moving the market.  Interestingly enough, the same analysts and traders (including myself in this list) wouldn’t shut up about the fate of the bond market being tied to covid for most of 2020.  Many of us have kept that correlation too far on the back burner so far in 2021, but it’s quickly making a comeback because it’s a very handy explanation for a sea-change in the bond market.  Case in point: yields leaming quickly higher in 2021?  And what are covid case counts doing?

20210218 open3.png

Granted, this is far from the only input for rates, but the abrupt drop in case counts so far in 2021 definitely helps explain some of the seemingly inexplicable urgency behind the selling.  If that’s the case, though, why are stocks selling today specifically?

20210218 open.png

Late 2018 provided a good reminder to markets about the power of rising rates to prompt stock market weakness.  Big, abrupt spikes in rates make traders question gravity-defying stock prices.  It’s that simple.  If you want to make it less simple, you could consider that the “stuff” that prompts big, abrupt spikes in rates tends to also decrease the probability of massive, ongoing fiscal and monetary support.  A certain amount of both of those things is currently priced in to future trading levels.  The monetary piece–especially–helps both stocks and bonds.  So when traders see it as incrementally less likely, both stocks and bonds can take a hit.

Last but not least, what’s up with MBS coupons?  Why are some getting hit way harder than others and what should we be watching now?  The short answer (if you’re looking to keep an eye on negative reprice risk throughout the day) is that 2.0 coupons are the best to watch, but 2.5 coupons are very close to taking the reins at current levels.  Either would work.  2.0s will be more sensitive to market movement (good option if you float with jumpy lenders).  

As for why lower coupons have been hit harder recently, this is always the case in a rising rate environment.  Lower coupons have higher durations because they’re less likely to be refi’d.  That makes them perform more like a longer-dated Treasury bond in the eyes of investors, and longer-dated bonds are getting killed recently.  The following 2 charts tell the story perfectly.  One shows the absolute change in price in 4 MBS coupons since the beginning of the year.  The other shows the same for Treasury yields in 2, 5, 10, and 30yr maturities.  The longer the duration (or the lower the MBS coupon), the bigger the sell-off has been.

20210217 update1.png

20210217 update2.png

Source: mortgagenewsdaily.com

MBS RECAP: Looking For Silver Linings Despite Falling Sky

After a huge day of snowball selling yesterday, bonds started out in weaker territory today.  Hugely strong Retail Sales data and sharply higher inflation told rates to keep on rising, but they quickly refused.  Several hours later, a decidedly weak 20yr bond auction made the same suggestion (i.e. higher rates), but yields continued holding modest gains.  As far as days with intraday yields hitting their highest levels in almost a year are concerned, that’s about as much resilience as we could hope for.  Tomorrow will be critical in confirming or rejecting today’s defiant show of support.

Econ Data / Events

  • Fed MBS Buying 10am, 1130am, 1pm

  • Retail Sales 5.3 vs 1.1 f’cast, -1.0 prev

  • Producer Prices (Inflation, y/y) 2.0 vs 1.1 f’cast, 1.2 prev

Market Movement Recap

08:21 AM

Bonds tried to bounce overnight but hit technical resistance at 1.28%.  Weaker ever since with the sharpest losses at the start of the domestic session.  1.315% on the 10yr heading into Retail Sales data.  MBS are down an eighth.

08:43 AM

More weakness following balmy econ data.  10yr quickly hit highs of 1.33% before recovering back down to pre-data levels.  UMBS 2.0 coupons are still down an eighth.

01:12 PM

Much-needed technical bounce coincided with stock losses earlier.  Yields were as low as 1.27% but are up and over 1.29% now following a weak 20yr Bond Auction.  Selling seems relatively contained so far an both MBS and Treasuries are holding on to modest gains at the moment.  

02:35 PM

No reaction to Fed Minutes.  Treasuries still slightly green but off their best levels and MBS still slightly red, underperforming.


MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

MBS

UMBS 2.0

101-32 : +0-04

Treasuries

10 YR

1.2840 : -0.0150

Pricing as of 2/17/21 4:11PMEST

Today’s Reprice Alerts and Updates

2:35PM  :  No Revelations And No Major Reaction to Fed Minutes

1:45PM  :  ALERT ISSUED: Negative Reprice Risk Increasing as MBS Underperform

1:08PM  :  ALERT ISSUED: Bonds Stumble a Bit After 20yr Bond Auction

9:19AM  :  Bonds Turn Green as Market Says Too Much, Too Fast

8:33AM  :  ALERT ISSUED: Big Beat on Retail Sales = Big Bond Beat Down

8:20AM  :  Tepid Bounce; Pre-Data Weakness


Economic Calendar

Time Event Period Actual Forecast Prior
Wednesday, Feb 17
7:00 MBA Purchase Index w/e 299.5 318.8
7:00 MBA Refi Index w/e 4337.0 4549.2
8:30 Retail Sales (%)* Jan 5.3 1.1 -0.7
8:30 Core Producer Prices YY (%)* Jan 2.0 1.1 1.2
9:15 Industrial Production (%) Jan 0.9 0.5 1.6
10:00 NAHB housing market indx Feb 84 83 83
10:00 Business Inventories (% ) Dec 0.6 0.5 0.5

Source: mortgagenewsdaily.com

There’s no 2-minute warning for rate shocks, even with Fed at the zero bound

The mortgage industry is notorious for its use of acronyms and even acronyms inside acronyms (TRID, anyone?). However, there is an acronym that is highly relevant to the current rate environment: ZIRP, which stands for “Zero Interest Rate Policy.” As its definition implies, this term describes the Federal Reserve’ s current policy of holding the Fed funds rate at near 0% for the foreseeable future due to the economic challenges presented by the COVID-19 pandemic.

It may be easy for some to assume a locked-down Fed Funds rate means mortgage rates will remain at the historically ultra-low levels the industry has seen throughout the pandemic. Not only does history tells us this is not the case, but the recent uptick in interest rates due to the rise in the Treasury yield and increased economic spending provides even more current proof that rate swings are possible, if not inevitable during ZIRP. As such, lenders and their capital markets executives must be prepared for interest rate swings in either direction despite the current ZIRP.

The last time the Fed instituted ZIRP was following the Global Financial Crisis, which lasted for a span of seven years, from December 2008 to December 2015. In December 2008, the average note rate for 30-year mortgages was 5.14%, when ZIRP ended in December 2015 the par note rate was 3.31%. However, that lengthy seven-year span was not a gentle expressway ramp; it was riddled with both bull and bear markets for mortgage rates despite the continued Fed pledge of “lower for longer.” Despite a Federal Open Markets Committee (FOMC) target on short-term rates of 0.00% – 0.25%, mortgage rates experienced several violent swings.

During what was known as the taper tantrum (remember hearing that talk again earlier this month?), the market was afraid the Fed was going to taper off its purchases of Treasuries and mortgage-backed securities so mortgage rates went up over 100 basis points over 3 short months. During another span of only 9 weeks prices on the lowest-coupon mortgage-backed security declined by a whopping 800 basis points, from 101 all the way down to a 93 handle. All of this activity occurred more than two years before the Fed actually instituted the very tiniest bit of liftoff in their Fed funds rate policy.

Looking at the current environment, the Fed has indicated that it will not raise the Fed funds rate until at least 2023. However, as the industry has observed before, this does not mean that mortgage rates are going to languish around the same range they’ve been in for the last 10 months. In fact, it would not be unusual to see changes of even an entire whole percentage point up, or down, for however long this current ZIRP is in place. In fact, Fannie Mae and Freddie Mac have both forecasted moderate increases in interest rates in 2021 in anticipation of this inevitability, though rates could certainly head in the opposite direction given the right market conditions.

In these past few months, I’ve heard people say things like “The market’s not going anywhere for a few years. The Fed said so, and it’s already priced in, right?” While that may be the case for the Interest on Excess Reserves and Fed Funds, which the Fed has pegged at near zero, there will not be an alarm that goes off letting lenders know to lock the doors. Just because the Fed is staying put doesn’t mean that mortgage rates, and prices of MBS, are staying put as well. As history has shown us, shocks can — and do — come when markets least expect them.

Source: nationalmortgagenews.com

MBS Day Ahead: Bond Bears Refusing To Hibernate; How Bad Could It Get?

Given recent temperature trends, we’re well within our right to expect actual bears to be in hibernation.  How about bond market bears?  They’ve eaten their fill so far this winter–enough that we might expect them to go quietly into the night simply due to oversold technicals.  Surely, a visit to the pre-covid all-time lows in 10yr yields would be enough to satisfy bearish appetites, right?  Or perhaps that’s entirely too obvious and the market will continue to punish traders who try to catch the falling knife (of bond prices) too soon.  With apologies for mixing metaphors, today’s early price action suggests the knife is still in the air and that the bears are refusing to hibernate just yet.

When will this change or what will it take for things to change?

Rates have been consolidating in a narrower range over the past 3 days after taking the lion’s share of the damage on Monday.  Such consolidations can be the market’s way of pausing before more selling, or they can serve to highlight seller exhaustion (i.e. perhaps the bears really are getting sleepy).  We really don’t know which version we’ll get until we get it.

The possibility of even more bond selling may seem surprisingly downbeat considering how quickly rates have risen already (and the uncertain economic fundamentals surrounding the post-covid economy), but that’s exactly why it’s a possibility.  Markets love to punish lopsided positions.  And if too many traders are betting on a bounce in rates, short sellers can force a pain trade by triggering buyers’ stop loss levels (or “stops” for short).  

We can assume there’s a big contingent of “stops” in the 1.33-1.34 area (i.e. right around the highs of the past few days).  Please check your assumptions about how big is “too big” when it comes to a bond market sell-off and understand this warning.  There is indeed a scenario where rates could blast another 5-15bps higher in the next few days.  That’s not necessarily the higher probability outcome, but it’s an outcome that should be considered when advising clients and/or making lock/float decisions.

If it makes it easier to explain, consider the historical context for this type of correction from the only relevant precedent at the start of the financial crisis.  Yields plummeted for 2 years (at a very similar pace to 2019/2020) and then underwent a technical correction to the long-term lows.  In the midst of that free-fall, there was “a hitch” that say yields move sideways in a narrower range for months, much like August 2019 through February 2020.  The point is made clear by the chart, but the takeaway is this: 2009’s precedent (you know… that year where we were pushing back against what we thought was a once-in-a-lifetime shock to society and financial markets) says bond yields might not face significant resistance until they get to their “hitch” zone.  In the current case, that zone begins around 1.45 and tops out near 1.95.

20210219 open.png

Again, to be very clear, this isn’t meant to scare you or to predict that rates are going another half point higher next week.  After all, the ‘hitch’ in 2009 set high yields that haven’t been revisited.  The point is to consider the more bearish possibilities along with the bullish bounce potential–to be realistic about the risks.  They don’t go away just because we don’t want to believe in them.


MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

MBS

UMBS 2.0

101-25 : -0-06

Treasuries

10 YR

1.3363 : +0.0493

Pricing as of 2/19/21 10:11AMEST

Tomorrow’s Economic Calendar

Time Event Period Forecast Prior
Friday, Feb 19
9:45 PMI-Manufacturing (Markit) * Feb 58.5 59.2
9:45 PMI-Services (Markit) * Feb 57.6 58.3
9:45 PMI-Composite (source:Markit) * Feb 58.7
10:00 Exist. home sales % chg (%)* Jan -1.5 0.7
10:00 Existing home sales (ml)* Jan 6.61 6.76

Source: mortgagenewsdaily.com