Mortgage Rates Approach Multi-Year Highs

Mortgage Rates Approach Multi-Year Highs

The downward trading channel continues to drive mortgage interest rates higher. Bond prices opened just above a critical support level and have since fallen beneath. This now will act as a ceiling of resistance for bond prices; which isn’t good news for the near-term direction of mortgage interest rates. With no sign of relief for prices, it seems things will continue to get worse for rates before they get better. With the next floor of support matching where mortgage rates were at multi-year highs, bond prices will hopefully find support at that level. If not, watch for mortgage rates to continue to climb as they reach levels not experienced in many years.

 

The US deficit continues to grow, as tax cuts lower the revenue created for the federal government to operate. Although it is partially covered by an increase GDP that has created more tax revenue, we can expect the stimulus impact to lesson as consumers and businesses adjust to the new norm as a tax rate. As the deficit moves higher, this will add upward pressure to interest rates as the government is forced to pay higher returns to keep up with the cash demand to maintain Federal expenses. Once again, the year 2020 seems to be a critical point when the downside to the tax cuts will hit the economy. For the first time in many years, we could see stagflation, which is where inflation moves higher as the economy slips into a recession. That is one of the most destructive possibilities for an economy, as it would require the Fed to continue raising rates even as an economy slows.

 

We will maintain a locking bias.