The benchmark mortgage bond coupon that lenders use to price their consumer mortgage rate sheets is shown on the chart below, and it shows bonds have dropped six days including most of today—rates rise when bond prices drop. It’s primarily from perception of positive Eurozone news of bank recapitalizations.
I said Sunday this week “will likely start with rates up slightly on perception of progress in Europe, then fade.” I’m growing more dubious about it fading this week, but that statement was rooted in the theory that market optimism about Eurozone bank safety nets misses the main point:
Bank liquidity moves probably won’t stop defaults, they’ll just help manage liquidity problems when defaults come—and U.S. rates would likely benefit from Eurozone defaults. This needs to play out further, but there’s still no clear evidence supporting a sustained rate spike.
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