“Bond watchers” “regardless of which party wins the White House and Congress, fiscal policies will end the budget deficit and fuel inflation,” warned Wall Street veteran Ed Yardeni.
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The mortgage rate hit the psychologically important level of 7 percent on Monday as “bond watchers” continued to seek higher yields due to concerns about rising government debt and hopes that inflation is out of control.
Long-term rates have been rising since September 18, when Federal Reserve policymakers announced they would cut short-term rates by half a percentage point but were more cautious about the pace of future rate cuts.
Investors in the bond market that back government debt and other debt have also pushed up prices because, as the Nov. 5 election nears, they worry that neither party has put a plan in place to deal with the $34.8 trillion national debt, said Wall Street veteran Ed Yardeni. Bloomberg Television on Monday.
Yardeni, founder and President of Yardeni Research, is said to have coined the term “bond watchers” back in the 1980s, when investors were shunning bonds as inflation ran rampant.
“It’s a hypothetical situation that bondholders are growing,” Yardeni said Monday. “There are no talks by either candidate about doing anything to reduce the deficit, to deal with the debt, to deal with the government’s rising interest costs.”
Whoever takes office in January, he noted, will be looking at annual interest payments on a national debt of more than $1 trillion.
Mortgage rates are rising
Since dropping 2024 to 6.03 percent on Sept. 17, rates on the 30-year mortgage have been steadily rising, reaching 6.69 percent on Friday, according to lock-in data tracked by Optimal Blue.
Although the Optimal Blue data is delayed by a day, the 10-year Treasury yield — a useful barometer of where mortgage rates are headed next — rose 7 basis points on Monday, touching 4.30 percent at one point. That’s the highest level since July, according to estimates tracked by Yahoo Finance.
An index maintained by Mortgage News Daily (MND) showed that 30-year fixed-rate mortgage rates rose 10 basis points on Monday, to 7.00 percent.
While Optimal Blue tracks contract rates — including those locked in by borrowers who pay points to get a lower rate — MND makes adjustments to estimate the effective amount borrowers will be offered even if they don’t pay points.
That means mortgage rates reported by MND tend to be higher than Optimal Blue, but trends tracked by MND are consistent with other benchmarks over time, including Freddie Mac’s widely followed Primary Mortgage Market Survey.
Long-term rates are headed higher because investors must consider the possibility that a 50-point rate cut the Fed has finally allowed “could overheat a warm economy,” Yardeni and Eric Wallerstein wrote on Sept. 22.
Now it seems that bond watchers “started voting early,” Yardeni and Wallerstein said – and are likely to “vote against Washington, thinking that whichever party wins the White House and Congress, the fiscal policies will affect the federal government’s already bloated budget. inflation. and fuel inflation.”
Where is the top?
Whether mortgage rates continue to rise depends on economic and inflation data to be released ahead of next month’s Fed meeting.
The Commerce Department will release its preliminary estimate of third-quarter gross domestic product (GDP) growth on Wednesday.
Economists at Pantheon Macroeconomics expect GDP to grow 3.5 percent in the third quarter, up from 3 percent in Q2 – “underpinned by another strong increase in consumer spending.”
But growth “is likely to slow significantly over the next few quarters, as households begin to tire,” Pantheon economists said in their latest US Economic Monitor.
The Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) index, showed inflation falling short of the Fed’s 2 percent target in August, falling to 2.24 percent.
The PCE index for September will be published on October 31 – and could provide relief for mortgage rates if it shows inflation continuing to slow.
Next on deck will be the Federal Reserve’s November meeting, which wraps up on November 7 – the day after the election.
Futures markets tracked by the CME FedWatch tool show that investors continue to expect the Fed to cut short-term rates by a quarter point next month.
On Monday, futures markets were pricing in just 4 percent that the Fed will hold rates unchanged next month, up from 13 percent on October 21.
Economists still expect prices to fall
Source: Fannie Mae and Mortgage Bankers Association forecasts, October 2024.
In the forecast for Oct. 10, Fannie Mae forecasters predicted that 30-year fixed-rate mortgage rates would drop below 6 percent in the first quarter of 2025 and further decline to an average of 5.6 percent in Q3 and Q4. But the rise in rates since that forecast poses a “significant risk” to mortgage ratings and home sales estimates, Fannie Mae economists said.
Economists of the Mortgage Bankers Association predict on Oct. 27 that loan rates will not drop below 6 percent until the second half of next year.
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