10 Year Treasury Note Yield Flirting with 3%

Mortgage bond prices continue to head lower as the downward trading channel drives mortgage interest rates to multi year high levels once more. The last time we saw mortgage rates this high was about four years ago.  This is terrible news as we head into the stronger home buying season of summer.

The 10 Year Treasury Note yield is currently at 2.99%, which is just beneath the critical level of 3.04% that we talked about a couple months ago.  We have to go back many years to find a point in time when the 10 YTN yield was above 3.04%.  A break above this would again be a bearish sign that mortgage interest rates will likely continue to climb higher.  However, it is likely that we will see yields bounce lower if they hit this level.  That could help stall the sharp rise in mortgage interest rates and allow the markets time to regain strength.  Since this move is largely a technical one, that seems to be the likely scenario.  However, the surge in yields is driven by higher commodity prices, not by economic gains.  So that adds an interesting influence to the current rise in rates.

Stocks continue to fall in a clearly defined downward trading channel.  If the downward trend continues, that could help stop the fall in mortgage bond pricing.  My guess is that several factors will align at the same time to help stop rates from climbing much higher.

With mortgage bonds still under pressure, we will maintain our locking bias.