Wednesday, June 03, 2015

Mortgage Rates increase to 4.1%

by Bill McBride on 6/03/2015 07:18:00 PM

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 276 thousand from 282 thousand.

• Also at 8:30 AM, Productivity and Costs for Q1. The consensus is for a 6.0% increase in unit labor costs.

From Matthew Graham: MBS RECAP: The Real Drama is in Europe, but Little to do with Greece

If you missed it, or are otherwise looking for a recap on why bond markets got crushed today, here it is. Nothing materially changed from that update, and that's no surprise considering the source of the drama was Europe.

For those of you who don't click links, suffice it to say that the European Central Bank is not the Federal Reserve. ...

It's actually not too complicated. Europe fought tooth and nail for several years to roll out a QE program. They finally launched it in early 2015 and specified the amount and timing. When markets began speculating that the amount might be less or the timing might be cut short, the head of the European Central Bank provided reassurance that the timing and amounts were predetermined. And now today, he said they weren't. It's really that simple.

For the sake of perspective, he did say that the European economy requires the full program for the full amount of time (Sep 2016). The problem is that he also said that the program could end early if there was a sustained adjustment toward inflation targets. Jeez... To reiterate some of my incredulity from this morning, this is dirty pool. The Fed has been widely criticized, to be sure, but I couldn't imagine the backlash if they pulled a similar move with one of our QE iterations that had a predetermined amount of bond-buying.

It's a surefire way to cause chaos. And that's exactly what it did. German Bunds sold off 20bps today (vs 10bps in US Treasuries).
Here is a table of mortgage rates from Mortgage News Daily: