On May 15, 2018, something very interesting happened in the bond markets. In fact, this is only the fourth time this unique even has occurred since the 1980s. Over time, a proverbial “ceiling” has been set on bond yields. As the market has fluctuated in the past 30-plus years, it has stayed within a somewhat predictable range.
Will We Break the Ceiling This Time?
Three times before in this date range, the bond yields peaked out and came very close to breaking through the imaginary ceiling. This just happened again and it may confirm the writing on the wall. Financial experts have been expecting interest rates to take a major hike upward in 2018. We’ve already seen some increases, but these latest bond trends hint that we could be on the precipice of the big jump we’ve been expecting.
Several factors are at play including Treasury issuance, Fed stance, continued economic expansion, risk of decreased need for trade partners to buy Treasuries, trade tariffs and retail sales numbers. Various economic indicators have sent bonds to their highest yields in more than six years. This could spark a buying spree that could ultimately send interest rates upward in a significant way.
Why This Time is Different
Some financial experts such as Matthew Graham suggest that the excitement over this bond yield increase is a little bit overblown, though he does concur that it will likely lead to major interest rate hike in the near future. “The point is, we’re likely still on a path toward higher rates—one that will only be derailed by things like full-blown trade wars and/or a bonafide bear market in stocks,” Graham writes. “Of course the rolling-over of the economic cycle (recession) would do the trick as well, but we’re not quite there yet.”
From a mortgage perspective, we have been expecting rates to keep rising throughout 2018. As of now, they are still quite low. This is making housing affordable for qualified buyers despite high home prices as a result of the inventory shortage in the market. The San Diego market always heats up even more in late spring and early summer, so it is a good time to act if you have been on the fence about buying a home or refinancing your current mortgage loan. Take advantage of good rates while they are still available.
As with all financial markets including these bond yields, mortgage interest rates are never 100% predictable. It remains to be seen what the rest of this year has in store. However, all signs point to more rate increases and that should incite more buying and refinancing activity in the immediate future.
If you have any questions about the mortgage lending process, current economic trends or how to get started with your own new home loan or home refinance, call Transparent Mortgage today at (619) 929-0199.