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June 12, 2013

How concerned should we be about this rate spike?

June 12, 2013

How concerned should we be about this rate spike?

Rate comments from Bespoke’s weekly subscriber report last Friday. Still relevant.

In spite of the fact that economic data over the last few weeks hardly resembles the type of growth that would cause the Fed to take its foot off the gas, interest rates have been on the rise for exactly that reason. Rising rates are a negative for the housing sector, but compounding matters further this week was the fact that mortgage rates were rising even faster than the yield on Treasuries.

The chart below compares the yield on the 30-year US Treasury to the national average 30-year mortgage rate. Over the last few weeks the rate of increase in mortgage rates was much faster than the in- crease in Treasury yields,. As of Wednesday, the spread between the two widened out to a six-month high of 91 bps before narrowing a bit on Thursday.

Screen Shot 2013-06-12 at 10.55.06 AM

While the widening out to 91 bps looks extreme in the chart below, from a longer term perspective, the increase was not nearly as alarming. As recently as last year, spreads widened out to 119 bps, and in late 2011 they widened out to 128 bps.

Screen Shot 2013-06-12 at 10.55.21 AM

To be sure, lower spreads (and rates) are better than higher ones, but until spreads widen out above those highs, we would not be overly concerned.

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Source:
Bespoke research