Yields Double Back

Bond-Yields-FallIf you forgot that interest rates are unpredictable, last week’s bond action was a fresh reminder.

The mid-March spike in bond yields has turned into another head fake. (Government bond yields generally lead fixed mortgage rates in the short term.)

On Thursday, the 5-year government yield sank to 1.388%, a fresh 3-month low. (Source: Bloomberg)

It is the third time in as many Marchs that the 5-year yield has made a new multi-month high, only to completely reverse less than 60 day later.

5yr-bond-yields

(Click chart to enlarge)

Yields are now back below levels that preceded the last round of 5-year 2.99% mortgage specials.

Despite banks’ drop in funding costs, however, many question whether they’ll price as aggressively this time around. Finance Minister Flaherty has strongly “discouraged” them from combative rate “sales.” (See: Flaherty on Rates)

So far, only a few lenders have lowered rates more than five basis points in the last week or so, despite yields diving 30 bps from April highs.

There are, mind you, some unpublished 5-year deals in the low 3.00% range through brokers. But they are available only on insured mortgages and/or those having restrictive terms.

If you need a pre-approval, a conventional mortgage, or a long-term (i.e., 90-120 day) rate hold, you’re generally looking at 3.29% +/- on a 5-year fixed.

If yields break below 1.30%, all bets are off. We’ll see competition heat up, if not from banks, then from non-bank lenders who don’t rely on bank funding and aren’t under federal regulation (like credit unions).


Rob McLister, CMT

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