Mortgage Rates

Does The Quantity Matter? Oil? Fed Fee Hikes?


We don’t usually talk too much about volume. It doesn’t matter much to tracking intraday factory price risk because price is price is price. If we look beyond the intraday timeframe, increased volume can validate any particular move. If volume is viewed as an increase in yield on a floor or ceiling, we could assume that this range is more likely to be amplified. If returns cross a technical barrier, we could take the breakout more seriously. Unfortunately, the latter is the case today as 10-year yields jump to their highest levels in months on high volume.

After all, it is not a very likely analytical endeavor to assign additional meaning to movements that occur on a large scale. It might help us to be a little better than 50/50 on certain conclusions, but not much better.

The more interesting questions right now focus on WHY rates keep rising. One of the most common questions we’ve been asking lately is whether higher oil prices will affect bonds. Oil will always be an option for bonds to some extent as long as it is an important source of energy for the transport of goods and people. Based on these roles, it is an important factor in inflation, and inflation is an important aspect of bonds. With that in mind, it’s no surprise to see a solid correlation over shorter time horizons.

However, there can be large deviations over longer time horizons – especially if there is a bond-specific event or a major shock in currency valuations (as was the case in 2014 due to the ECB’s QE).

20211018 open4.png

It is also worth considering how much oil price fluctuations need to take place before it can reasonably be argued that this matters to bonds. For example, if we look at the percentage change in oil prices compared to bond prices, the graph looks very different.

20211018 open1.png

And it looks different over longer time horizons. The following graph shows the percentage probability from the mid-1990s.

20211018 open2.png

Perhaps one of the most striking correlations in recent weeks has been between interest rates and the Fed’s rate hike expectations. We’ll talk more and more about this until the first rate hike (which the market is now convinced will be in mid-2022).

20211018 open5.png

MBS pricing overview

The price shown below is delayed, please refer to the timestamp below. Real-time prices is available through MBS Live.


UMBS 2.5

102-14: -0-04

Government bonds

ten years

1.5980: +0.0220

Prices from 18.10.21 10:05 a.m.

Tomorrow’s economic calendar

Time incident period forecast Earlier
Monday October 18th
9:15 Industrial production (%) September 0.2 0.4
10:00 NAHB housing market index Oct 76 76
Tuesday October 19th
8:30 Housing start number mm (ml) September 1,620 1.615
8:30 House starts mm: change (%) September 3.9
8:30 Building permits: change mm (%) September 5.6
8:30 Building permits: number (ml) September 1,680 1,721
Wednesday October 20th
7:00 MBA purchase index weather 279.8
7:00 MBA Refi Index weather 3023.0
10:30 am Crude oil inventory (ml) weather 0.702 6,088
Thursday October 21
8:30 Philadelphia Fed Business Index * Oct 25.0 30.7
8:30 Unemployment entitlement (k) weather 300 293
10:00 Exist. Home sales% chg (%) * September -2.0
10:00 Sale of existing homes (ml) * September 6.09 5.88
10:00 Leading index chg mm (%) September 0.4 0.9
Friday October 22nd
9:45 Composite PMI from Markit * Oct 55.0
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