Yesterday was a good day for mortgage rates, today, not so much – the roller coaster ride continues. After sitting in a pretty tight range for several months, we’re seeing pretty wild swings in mortgage backed securities almost every day for the past couple of weeks. It’s all at least a little bit puzzling, because while we’ve seen some firmer economic data of late, last week featured a mediocre jobs report and a negative GDP report. While the underlying data may be healthier than the headline numbers indicate, these conditions should keep the Fed buying assets for quite some time. Still, stocks keep rising at the expense of bonds and interest rates are pushing higher.
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I suppose it is worth noting that we have seen a similar pattern with mortgage rates over the past two years. Rates have risen early in the year, usually peaking sometime in the spring, only to fall during the summer and fall. While this is not especially instructive, there are some factors in place that could cause a redux of this scenario. In March, $1.2 trillion in sequester cuts (much of it to defense) are going to kick in unless Congress takes some action. There’s going to be a lot of rancor over this. In the event that the sequester cuts proceed, the negative impact on GDP and employment could be large. Given the large amount of uncertainty this will engender, we could see rates dip in advance of the sequester.
Furthermore, we still need to deal with the debt ceiling. Artificial crisis that it is, this particular can was only kicked down the road to May 18. Of course, the sensical thing to do would be to eliminate the debt ceiling entirely, or suspend it for a period of years, because at the end of the day, I think everyone realizes that the threat to not raise the debt ceiling is a complete and utter bluff, a political leverage ploy. Still, this will situation will also stir up a lot of rancor and uncertainty, and this could also be good for rates.
And of course, beneath it all, there is still the sluggish economy and persistent unemployment problem. There’s a lot of headwinds that many seem to be conveniently ignoring right now. I think there is at least some reason to believe these factors will constrain rates from rising too far in the coming months.
Today’s Links:
NBC: Justice Department Memo Reveals Legal Case For Drone Strikes on Americans. Here’s a link to the memo itself.
Michael Lewis: The Trouble With Wall Street – The Shocking News That Goldman Sachs is Greedy.
McClatchy: Alleged Killer of Retired SEAL Chris Kyle Had Been in Mental Hospital.
Scientific American: Injectable Foam Blocks Internal Bleeding on the Battlefield.
Bloomberg: Rove’s Move Into Republican Primaries Enrages Tea Party.
Fangraphs: Brandon Webb and the Lessons We Know. As someone who has torn a labrum: once they cut it, it’s never really the same. And I’m no Brandon Webb.
Yves Smith: Should We Take the Department of Justice’s Suit Against Standard & Poor’s Seriously?
Bloomberg: Yale Suing Former Students Shows Crisis in Loans to Poor.
Ritholtz: This is Housing Bubble 2.0: David Stockman. I do think that a lot of the gains in home prices could prove to be illusory, distorted by the Fed and ultra-low rates.
Telegraph: Spanish Prime Minister Mariano Rajoy Under Pressure to Quit.
NYT: In 2 Trailers, the Neighbors Nobody Wants.
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