Market Commentary 6/30/17

Volatility finally returned to the global bond markets, with higher international yields, sparked by the European Central Bank’s comments on market normalization. The US Fed’s comments on the necessity of raising short-term rates moved up mortgage and treasury yields. This combined with the prospect of rising European bond yields, the US bond yields touched multi-monthly highs.

We are continuing to closely watch the German 10-year Bund yield (.45%) and the U.S. 10-year yield (2.27%). If they rise above resistance at .50% and 2.30%, respectively, then yields could very likely push even higher, causing mortgage rates to most likely tick higher also.

In economic news, housing remains strong and inventories are low, which is putting pressure on home affordability. Inflation remains muted with the Federal Reserve’s favorite measure of inflation, the Personal Consumption Expenditures (PCE) Index, falling to its lowest level in months: – 1.400% year-over-year, which is well below the Fed’s 2.00% target. We have previously noted that the Fed believes low inflation is transitory and that higher wage and consumer inflation will return.

We are biased toward locking in interest rates given the chatter from both the European and US central banks.