Today I was interviewed on Bloomberg for my take on a few items. Has the 10-year yield bottom? Do we really have another refinance boom? Have lower mortgage rates boosted demand? What is the credit quality of the loans in this economic expansion?
My interview on Bloomberg:
On the 10-year yield. I am sure my followers are sick to their stomach about me babbling on about my 1.60% level since November of 2018. However, we just got there.
“For 2019, I am sticking to my call that the 10-year yield will channel between 1.60% to 3%. If world trade gets weaker, we could see the 10-year yield with a 1% handle again.”
I always hold the line here at 1.60 %. This has been my bottom range forecast yield since I started to incorporate them into my yearly prediction articles, 2015, 2016, 2017, 2018, and 2019.
Just recently on July 25th, I tweeted to Lisa from Bloomberg that if the market sold off, we have the right backdrop for the 10-year yield to get to 1.60%.
Since November of 2018, I wanted to show my readers why the 10-year yield will go down. I believe that education is better than these token gimmick lines given on networks for a decade.
1. Rates are too low, they have to normalize
2. Bond Market is a bubble
3. Nominal growth at 2% and inflation at 2% means a 4% 10 year
4. CNBC guest continually talking about a 4% 10-year yield like that is a magical number.
You wonder why we are so terrible at forecasting mortgage rates and bond yields.
I go back to the economic conference last November 8th, when the 10-year yield was at 3.24%, and everyone was so sure of higher yields and mortgage rates. I literally got out of my chair to show people that we have never broken the downtrend since 1981. People have just been guessing without a real model on forecasting yields or rates.
With that said, I respect the economics of what drives yields lower. This was a stable reason why I called for yields to invert in 2018 with my prediction call at the end of 2017 and why I was really confident of lower yields in 2019. Technicals and Economics had the best backdrop for yields to go lower in 2019.
“I am also looking for yields to invert in 2018.”
2017 Yield Inversion Call Looks Great
Moving ahead, we have had a significant reversal in yields since the lows of yesterday. I provide a list of items that could break my 1.60% line this year. Some of these things are out of our hands, and some are not. However, to head lower in yields below my 1.60% level, you need these things to occur. Without these factors, It’s hard-pressed for me to see yields going below my 1.60%. This was the case in 2012 and 2016. Both those years needed economic events to drive yields lower from 1.60%. The 2012 Spain Default Fear Trade and 2016 Brexit. Brexit 2.0 is happening on Halloween this year. So, just be mindful of these factors.
“Can the 10-Year Yield Break Under 1%.”
For now, I am telling people to keep an eye out at 1.56% on the 10-year yield and 1.94%. For now, we are on a channel here until one of these critical levels break.
Regarding the refinance boom. Most people in America have rates of 3.25%-4.25%. While refinancing is picking up this year as it should. It’s working from 21st-century lows, and we have just taken the last massive supply of refinance loans left offline. Homebuyers from 2017 and 2018 are in play for a rate and term refinance, but that is pretty much it. To have a real refinance boom like we did in 2012, you need the 10-year yield to break below 1%. Please don’t be shocked if that happens in America. After what we have seen in this cycle and around the world. A 2 handle on mortgage rates is in play and should be the case in the next recession.
From Calculated Risk:
Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data daily on his own facebook page https://www.facebook.com/Logan.Mohtashami