It appears the mortgage rate rally of the past couple days is running on fumes.
I was skeptical of it to begin with, given it was mostly based on a single article claiming we were close to a peace deal.
That led to a big drop in oil prices and corresponding drop in bond yields, which translated to lower 30-year fixed mortgage rates.
Now it appears bond yields are back on the rise ahead of the all-important monthly jobs report tomorrow.
If that comes in hot in the morning, mortgage rates could return to previous highs in no time at all.
Why Mortgage Rates Rallied Yesterday
While there was a sudden burst of optimism yesterday regarding a possible end to the conflict in the Middle East, it wasn’t based on much.
There was an article in Axios that was apparently enough to get everyone excited, for oil prices to drop, and for bond yields to ease.
But that was yesterday, and today is a new day. Yes, we’re hearing even more positive developments that numerous talks are taking place.
However, whenever you take the time to read beyond the headlines you’ll often find things like “they’re still far apart” or they’re likely not going to “accept the proposal.”
So sure, it’s positive that they’re talking and not fighting, but the Strait of Hormuz remains closed and each day that it does, things get worse.
What If the War Drags on and Labor Heats Up?
Chances are we aren’t going to get a quick resolution in the Middle East.
As such, oil remains high, prices are going up again on all products, backlogs will take that much longer to clear, and as we all know, it’s hard to peel back prices once they increase.
That all spells inflation, which is an enemy to bonds and mortgage rates. Ideally, we see a deal soon, but this week or even this month seems pretty unlikely.
The other issue is labor, which was looking shaky for a while, but seems to be defying expectations of late.
We got the best ADP jobs report in 15 months yesterday and tomorrow we get the monthly jobs report from the BLS.
If that comes in above expectations, well, expect mortgage rates to bounce higher, especially if there are any setbacks in the Middle East.
It’s really that simple and that’s why I’m pretty skeptical of this rally, and probably why you’re already seeing mortgage rates firm up again.
