Rates Spike Continues As 10yr Note Yield Breaks Higher

Bond pros have been watching a 1.94% yield level on the 10-year Treasury Note as an important support level to stem selling that began two Fridays ago after a mediocre but better than expected April jobs report—yields (aka rates) rise in a bond selloff.

The selling continues today, and the 10yr Note is now at 1.95. Here’s my friend Matt Graham, a bond market analyst at MortgageNewsDaily, summing it up in a chart:

10yrNote_May14

Lenders look to mortgage bonds (aka MBS) rather than the 10yr Note for cues on pricing consumer mortgage rates, but MBS market trading does follow trends in the 10yr Note. So MBS are also selling, pushing rates higher.

As of now, we’re about .25% higher than Wednesday, May 1 which was two days before the April jobs report. That day was the most recent FOMC rate policy meeting, and I said that day: “Rates are about as good as they’re going to get…”

Since then, a few other things have influenced the bond selloff:

(1) Last Thursday, May 9, a Credit Suisse research report re-confirmed their position on the Fed pulling back from rate market support, saying: “Our takeaway from the FOMC is that the committee is looking for justifications to pull back from its QE3 purchases, a message consistent with comments from various Fed speakers over the past several weeks.”

(2) Last Friday, May 10, a Bloomberg story report cited bond king Bill Gross of PIMCO implying that the bond bull market probably ended April 29.

(3) Last Friday, May 10, the WSJ reported—via John Hilsenrath, the Fed’s chosen media messenger—that the Fed is examining ways to wind down the bond buying (aka quantitative easing) they’ve been doing since January 2009 to keep rates low.

That last point is a precursor to the release of the May 1 FOMC minutes next Wednesday, May 22. Rates rose after the minutes from the previous two meetings were released and revealed a growing bias toward easing of quantitative easing. And this time, rates are rising ahead of the Fed minutes.

The selloff since May began has been sharp, and again, it’s driven rates up about .25%. And the technicals today don’t bode well for an improvement—especially ahead of those Fed minutes next Wednesday.

UPDATE: 10yr yield closed at 1.98%, underscoring the outlook in the previous paragraph.
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Reference:
9 Ways The QE Winddown Will Play Out (Josh Brown)

Follow Matt Graham & MortgageNewsDaily on Twitter: @mortgagenewsmnd

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