Mortgage Rates rise half a point in 30 days

Good afternoon!

Mortgage rates are rising! Investors were in a buying mood on Friday(I have no idea why). The bond market however is getting increasingly more bearish. The 10 year note has now risen to 4.26% which is the highest rate this year.

Mortgage rates have risen as a result as seen here on Bloomberg.

As you can see, rates have risen from 5.82% up to 6.3% month on month. Mortgage backed securities have also risen to the highs seen last summer as seen in the graph below. This doesn't always correlate with mortgage rates but its a good indicator.

Consumer sentiment also seen below is putting further pressure on rates rates because the bond market is becoming increasingly more skeptical of the massive debt bubble that's been created over the past 20 years.

As a result, yields are rising which pushes up rates. Never bet against the bond market. They almost always get it right. The catalyst for the tech bubble bursting was created in the bond market by rising rates. When things look ridiculous like the current debt bubble does, yields on bonds rise especially when inflation is in the picture.

Great read and bottom line:

I recommend that everyone reads the following commentary from Doug Noland from Prudent Bear. Make sure you read his conclusions at the bottom. Its a great read.

One of his conclusions:

"The risk that our economy has entered a substantial downturn has actually increased markedly over the past several weeks. Importantly, energy costs have risen significantly to the point of being economically destabilizing. The combination of spiking energy and food costs has created the worst global inflationary backdrop since the seventies – a dangerous predicament only belatedly appreciated by global policymakers. Central banks across the globe have begun to react, and vulnerable global bond markets are under heavy selling pressure. There is today great uncertainty as to the consequences of a global spike in bond yields.

Importantly, the Fed’s aggressive “reflation” is being stopped dead in its tracks by market forces. U.S. market yields are moving sharply higher, with benchmark MBS yields now all the way back to last summer’s levels. This is forcing another round of speculative de-leveraging in the highly leveraged mortgage Credit market, which is tantamount to a further tightening of already tight mortgage finance conditions. This is another huge blow for the vulnerable Bubble Economy."

Bottom Line

Rising interest rates in the bond market are a long term phenomenon and I don't see this changing anytime soon. This will be a crushing blow to the economy and the Fed will have no way of controlling it.

Consider this a big "kiss my behind" to the Fed from the bond market. Including inflation, the Fed funds rate is already at zero. If they drop rates again the bond market may take mortgage rates even higher with increasing yields.

Housing has much further to go on the downside with the bond market now starting to panic.

You ain't seen nothing yet when it comes to dropping home prices.