Locking bias

It’s the day after, and many are now reflecting upon the impact of yesterday’s move by the Federal Reserve to push interest rates higher.  Given the nearly 100% chance of a rate hike yesterday, the market seems to have overreacted to the news.  The bond market suffered surprisingly more than seemed reasonable, considering that most of the rate hike should have already been baked into the price of bonds before the announcement was made.  Nonetheless, the reaction caused mortgage interest rates to move between 1/8% – ¼% higher almost immediately following the announcement.  This adds to the already painful rate increases the market has experienced since the presidential election results were announced.  Hopefully, we will see things stabilize here in the near term and allow markets to adjust to our new reality. 

It’s another heavy economic news day, highlighted by this morning’s release of November’s Consumer Price Index (CPI) report.  Although not the Fed’s favorite gauge of inflation, it truly is a more accurate representation of cost increases for US families.  Headline CPI was up 0.2%, a move up from 1.6% to 1.7% on a year over year basis.  The Core CPI rate, which strips out food and energy prices, also rose by 0.2% on a month over month basis.  However, the year over year rate was unchanged from the previous month at 2.1%.  Given the recent increase in the price of oil, both the Core and Headline rates were in line with market expectations, so there was little reaction to the news. 

Today is an extraordinarily important day for mortgage interest rates.  Both the 10 Year Treasury Note yield and mortgage bond yield are at multi-year highs.  There was a short time between 2-3 years ago, where rates were slightly higher.  If rates move above these levels, there is little recent history to help us predict where the damage will end.  Although recent historic trends have done little to help slow the excessive jump higher in rates, there must be a point at which the slaughtering comes to an end.  In the meantime, locking remains the safe play.