The WSJ published results from a survey they did on Thursday and Friday of last week which shows that all 18 of the primary dealers that underwrite US Treasury auctions believe yields will be higher next year. Here is a chart with the results:
The average forecast for the 10-year treasury was 4.125% which is about .50%-.75% higher than it has yielded over the past couple weeks.
Although mortgage-backed bonds (MBS’s) and 10-year treasury notes don’t trade in perfect correlation they are highly correlated. It’s kind of like the relationship between the stock price for 3M (MMM) and the Dow Jones Industrial Average. On any given day they may not trade in the same manner but over longer periods of time the two are highly correlated.
Therefore, what we can infer from this is since 10-year treasury notes are expected to increase in yield by .50%-.75% mortgage rates are likely to follow suit.
Day in and day out we may see temporary periods where rates fall but the overall trend is likely to be rates moving higher.