logo
  Join        Login             Stock Quote

What Drove The 30Yr Mortgage Rate Higher?

 February 12, 2013 04:44 PM


After this post in early December discussing the possibility that MBS, particularly the 30yr FNMA had become a "crowded trade" and mortgage rates may have bottomed, we've received numerous e-mails arguing that based on the Fed's recent actions, agency MBS has more upside. Furthermore, the US consumer got so used to mortgage rates constantly moving lower, the reversal of that trend - even a temporary one - seemed unfathomable to many. But that is in fact what happened, as the 30yr mortgage rate stopped declining.
Source: Bankrate.com

[Related -Health Net, Inc. (HNT): Potential to Be Huge Winners Says Bank of America]

This reversal in mortgage rates was in fact driven by the sell-off in long-dated agency MBS, which many argued would not happen this quickly - yet here we are.

Source: Mortgage News Daily

[Related -HomeAway, Inc. (AWAY) Q2 Earnings Preview: Top and Bottom Line Bullish Surprise?]

There are a number of reasons for the sell-off and the recent (mild) rise in the 30y conventional mortgage rates:

1. Dealers have built up a massive inventory of this paper, making it a bit more vulnerable to a correction.

2. Treasuries have sold off materially since early December (about 35bp yield increase on the 10y note), dragging MBS with them.

3. Some institutional investors are preparing for the Fed's eventual exit by unwinding their MBS holdings.

Reuters: - The PIMCO Total Return Fund, the world's largest bond fund run by Bill Gross, decreased its mortgage holdings to its lowest level since mid-2011, ahead of the prospect of higher interest rates and emerging inflationary pressures.
4. The Fed's purchases have been increasingly focused away from the 30yr FNMA, which they probably view as overpriced, and more on the GNMA and the shorter maturity FNMA (such as 15yr) bonds.
Source: JPMorgan ("Conv." stands for "conventional")

That's one of the reasons the 15yr mortgage rate has not moved up as much as the conventional 30yr.

Going forward, the direction of agency MBS paper is less clear, given the tremendous dependence on the Fed, who will be growing its balance sheet to unprecedented levels. The upcoming US sequestration cuts could in fact push treasuries higher (by slowing economic growth), with MBS following. On the other hand institutions will certainly become more cautious on their MBS holdings, given the increased rate risk.

iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageChipotle Mexican Grill, Inc. (CMG) Q2 Earnings Preview: Will Higher Traffic Offset Higher Costs the Key

Chipotle Mexican Grill, Inc. (NYSE:CMG) will host a conference call to discuss second quarter 2014 read on...

article imageNetflix, Inc. (NFLX) Q2 Earnings Preview: The Ruby Month for a Reason

Netflix, Inc. (NASDAQ:NFLX) will post its second-quarter 2014 financial results and business outlook on its read on...

article imageLadenburg Thalmann Financial Services (NYSEMKT:LTS): Heavy, Durable Insider Buying

Ahh, but any worries over price levels didn’t stop multiple insiders at Ladenburg Thalmann Financial read on...

article imageInternational Business Machines Corp. (IBM) Q2 Earnings Preview: Small Beat and Pop

International Business Machines Corp. (NYSE:IBM) will host a conference call Wednesday, Jul. 16, 2014 at read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.