Last week was mostly good for mortgage rates, even if the goodness was made possible in large part by the badness of the previous week. By Friday, rates were 0.15% lower than the previous Friday, on average.
As the new week begins, virtually all of that progress has been erased. In other words, the average lender is now very close to the same rates seen on Friday, October 6th. But why?
Unlike those moments where we have a clear culprit like a strong jobs report or higher-than-expected inflation, today’s rate spike is the product of vague generalities. If you’re determined to try to connect the dots, here are a few ways to try:
- The gap between longer and shorter term bonds experienced increased volatility last week due to geopolitical issues and new messaging from Federal Reserve speakers. Part of today’s weakness is a reflection of that volatility continuing to play out.
- Traders were more upbeat on bonds on Friday, possibly reflecting the closing of short positions (bets on higher rates, which are closed by buying bonds. This pushes rates lower.) ahead of a weekend with increased geopolitical risk. Those traders are re-entering their short positions at the start of the new week.
See… it’s pretty esoteric and not that satisfying of an explanation. We may have a chance to see a more normal reaction function tomorrow after the release of the Retail Sales data for September. Even then, geopolitics and Fed speeches can continue to cause unexpected volatility in the short term. Moreover, we continue waiting on a unified theme of slower economic growth reflected in multiple reports before we’ll truly be able to identify a big shift back toward lower rates.
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