Last week sinks in, and WHOOSH go yields.
By Wolf Richter for WOLF STREET.
The average 30-year fixed mortgage rate spiked to 6.39% today, according to Mortgage News Daily, having bounced by 40 basis points in two days off the low of 5.99% on Thursday, giving up a month worth of declines in two days.
Gone are the hopes for “stability” in mortgage rates – meaning lower mortgage rates with smaller moves – that the housing industry has been hoping for and talking about, including homebuilders that just gave their Q1 guidance based on mid- to late-January sales orders, when mortgage rates were a lot lower and apparently heading lower still. And now the wild ride has started all over again.
The two-year Treasury yield has jumped by 37 basis points since the close on Thursday, the day after Powell had spoken: 16 basis points today and 21 basis points on Friday, to 4.46%, unwinding in two days more than half of the 65-basis-point decline from the high in early November:
The 10-year Treasury yield has jumped by 25 basis points since the close on Wednesday, Powell-day, including 11 basis points today so far and 13 basis points on Friday, to 3.64% at the moment, unwinding in three days over a quarter of the large 88-basis-point drop since late October.
In an amazing feat, the bond market blew off – temporarily, so to speak – Fed Chair Powell’s discussion about inflation last Wednesday, how “core services inflation without housing,” which constitutes 55% of the core PCE price index that the Fed uses as its inflation yard stick, was not subsiding at all; how further rate “increases,” plural, meaning two or more, would be coming, and how no rate cut was on the table for 2023.
They looked at his slumped posture and heard his soft voice, and heard how he struggled to politely answer the same stupid leading questions over and over again, instead of just Tasering the reporters one after the other, or something. (I listed these stupid leading questions at the bottom of my What-Powell-Really-Said article.) And markets, whoever they are, thought Powell was promising a pivot or whatever.
I mean, it’s the markets, and they’re a crazy bunch and they do whatever for whatever reason, and a big bout of short-covering might have had something to do with it last week. That willful misreading of what Powell actually said was funny nevertheless.
But the honeymoon ended on Friday, when the jobs report drove home in vibrant detail what Powell had said about the labor market on Wednesday – that it was still feeding into “core services inflation ex-housing,” and that therefore a pivot wasn’t on the table this year. And today, it sank in further, and WOOSH go yields.
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