Wednesday, June 3, 2015 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
The explosive increase in rates has taken markets by surprise - shock and awe. Since last Friday MBS prices from wholesalers and aggregators have increased 136BPS, putting the rates solid in the 4 range.
It started in Germany with the German 10yr bund and spread rapidly to the US bond market. The bund yield traded at 0.07% six weeks ago, began inching higher until Monday when the lid blew - the 10yr bund now at 0.90%. Like stretching the rubber band, once it snaps the reaction is swift. Most of the markets were off guard coming into this week, the employment report on Friday and concerns that Greece may not be able to meet the payment due Friday had kept some safety bids in treasuries. Now, for the moment, Greece, until next week after the payment is made is in the news but no bets on a default. And the payment will be made. Difficult to square why the fear of a default has ebbed this week - through the month of June the Greek government is on the hook to make its payments which is impossible as things stand now. IMF, ECB and EC will continue to dominate news all through this month. The latest news is that the leaders will lay out a plan for Greece to adhere to in order to get more bailout funds - if Greece cannot do it then default is a possibility. It is such a moving target though that any opinions are purely speculation. Markets now do not believe that the IMF will let Greece go down. Anything to the contrary is off the mark - at the moment. We would not be seeing interest rates explode if a default was expected, and the euro currency would not be rallying against the dollar.
The Fed is still out there - nothing from the bank on the implications of what is occurring now. Tomorrow weekly jobless claims are expecting a decrease from last. Q1 productivity and Q1 unit labor costs also out. Neither will get much attention with May BLS employment data on Friday. Rookies are out there trying to make sense about what is occurring, professionals simply riding the wave. Most key analysts and pundits know when they do not know. That is the situation now, guessing is not going to get anywhere, as we continue to harp on, just go with the market action now and do not try to make sense of it - in time markets will settle.
There are infrequent times like now that are so fluid and uncertain, why try to be a hero? Volatility is another definition for uncertainty yet some continue to make a case that they have an answer - but right now I do not have an opinion now - sorry folks. Rates are going to increase more. I cannot say it enough - get locked in when making your application right now - if you are looking for a rebound right now, you more than likely will not get much. However, if history does play itself out, this huge increase should bounce back, but right now, that is based upon more of a hope than facts... I wish I had the crystal ball working for me today..
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