In the summer of 2013, in an incident widely referred to as incident as the “taper tantrum”, the bond market threw a hissy fit over a Fed announcement that the Fed would taper QE purchases.
In late 2013, the Fed gave the market what it wanted, and rates reversed.
Now, on news the Fed is finally serious about hiking rates, the bond market has thrown another tantrum, with mortgage rates as well.
Yield Curve 1998-Present
The current tantrum does not match the severity of 2013.
As of last Friday, the 30-year yield was 3.01% and the 10-year yield was 2.36%, both well under the 2013 highs.
Chart courtesy of Mortgage News Daily, anecdotes mine.
Despite treasury rates being substantially lower than the peak in 2013, mortgage rates are well into tantrum territory.
Other than the taper tantrum, rates are higher than they have been since September of 2011.
This will likely kill the refi market. Higher interest rates will also impact home affordability numbers.
Mike “Mish” Shedlock
How will American continue to not peddle fiction?
No way to refinance larger debt with lower rates.
No way to take out more home equity.
Bond holders getting killed.
Real estate prices going down.
The interest on the deficit will explode.
Ed Bear said:
It’s all a binary choice. Honest money or chaos. Pick one.
Honest money = get rid of the Federal Reserve. Ron Paul 2016
These higher Treasury yields – to steal a phrase from Bernanke – will prove to be VERY transitory.
The lure of juicy coupons, plus the likely prospect of substantial F/X gains will prove irresistible to foreign investors.
There are numerous GARGANTUAN gaps on the daily charts of $TNX and $TYX. Two of them are even WEEKLY gaps. They will ALL be filled in due time.
My model has been saying since sept 2.25, and since oct 2.4, for Fair Value, and all the opportunity is now in the front end, which is way too low. But I haven’t owned a bond in about 5 years, so I wish you luck.
I got caught in the tail end sell off in that one. Made good on that one, but it coullda been gooder if I’d paid a bit more attention, No bets this time.
grey enlightenment said:
yeah.the funny thing every pundit between 2008-2015 said Obama would cause bond-crushing inflation but it’s trump who has caused this sudden concern over inflation. who saw that coming.
Don’t count on that yet. It’s still just a prediction
“This will likely kill the refi market. Higher interest rates will also impact home affordability numbers.”
What refi market ? As long as you don’t have large numbers of younger people buying homes and establishing families and moving up in life, the refi market is like a mirage in the desert. Millenials and others that will follow are choosing to live life a different way because of what happen to their parents and how they see the world. The world has changed so much in the last 8 years that I hardly think things will go back to the good old days, even with Trump in the White House.
Do you think this will end in the same way the taper-tantrum did?
Seems like there are a lot more out of the ordinary things at play in Europe / India now vs 2013.
The 2003-2006 credit tightening cycle yields across all durations were synchronized. They all bottomed in early 2003. The recent tightening cycle started in the 5yr and shorter yields in 2012. It wasn’t until 4 years later the 10 and 30 yr yields bottomed. This is a HUGE divergence that has resolved to a macro trend of yields moving the upside. Yields should continue to rise over the next year.
Do you have any idea what kind of havoc this relatively minor (so far) uptick in 10/30-year Treasury rates is having on emerging markets? USD at 12-year highs already. Dollar strength is DEFLATIONARY!!! And you think they (The Fed) will let this continue for another year? Are you out of your mind?
Billy Walrus said:
You don’t sound like a Kool Ade drinker. This should be obvious to everyone except Janet Yellen and her idiot companions.
Truth seeker said:
How can u b so sure that rates will continue to move up once the fed move is done? The boys n Austin think this is just a correction n an on going deflationary bond bull market that even after all these years has yet to see it’s low n yields. I’ll admit they can’t b right forever, but what will b the catylist?
3%. No big deal. Nothing to worry about.
russ cohn said:
This current”tantrum” is far from over.What happens to the mortgage market when the 10Y yields %3.5
Michael Rudmin said:
in my case, I was trying to buy a farmette / first mortgage /super-high credit score well within my capabilities; but despite that, the mortgage fell through, because it wasn’t a standard McMansion package.
Point being, that the banks appeared to be scared shirtless over anything that wasn’t guaranteed.
Veterans, for example, have no problem because that money is guaranteed. I’m not a vet.
So… to a large fraction of the market, the low rates meant unavailability to non-government-backed buyers.
It will be interesting to see whether this changes under higher rates, or whether we are now permanently into GEICO territory.