Mortgage Rates Spike On Janet Yellen’s Testimony
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After trending lower for most part of 2014, mortgage rates have started edging up.
Janet Yellen’s first testimony to the Congress as the new Fed Chairperson was the trigger behind the mortgage backed securities (MBS) rout. When MBS go down in price, mortgage rates go up.
Yellen made it clear that she would continue the policies seen from Bernanke. She provided an upbeat assessment of the economy and said that recent weak data and turmoil in emerging markets did not change the economic outlook. Her comments suggested that the Fed will continue scaling back its bond purchase program at a steady pace. The next tapering may be announced at Fed’s March meeting.
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This went against investors’ estimates who were thinking that Yellen might pause the bond tapering. The statement of continued tapering came as a surprise and resulted in big sell-off for MBS on both Tuesday and Wednesday. On February 11, it went down by 54 basis points (bps) and on February 12, it was down 41 bps. A drop of 90+ bps in MBS prices in 2 days would mean an increase in mortgage rates of .125% to .25% depending on the loan program and credit situations.
See the chart below with 2 days of back-to-back steep declines.
The rates were showing signs of going up few days before as well expecting a better employment report. This is evidenced in 3 consecutive days with red bars showing MBS prices going down. However, a poor employment report resulted in slight improvement (as shown by the green bar on Friday).
Outlook for Mortgage Rates
Now that the investors are not that bullish on MBS as they were a week back, even the smallest of news pointing towards economic recovery will spike the rates. However, the biggest mover of mortgage rates in next few weeks- the employment report, is not out till the first week of March. A good employment report will further sink MBS and increase mortgage rates. Next 2-3 weeks should be a good time to lock a rate if you are in the process of (or considering) getting a mortgage.
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