US 10-year treasury note holds key to mortgage rates this week

On this day in 1947 a mother walked into a hardware store in Tupelo, Mississippi and purchased a guitar for her 11-year old son’s birthday.  It was his first guitar and the $6.95 investment turned out to be a pretty good one.

In 2004, the son’s estate sold for ~$100 million which equates to a 33.5% annualized return.  The power of compound interest brought to you by Elvis Presley.

Mortgage banks only wish they could earn a return of 33.5% on their loans.  Rates did tick up last week (modestly) but at today’s 30-year fixed rates it would take 401 years for a $6.95 investment to turn into $100 million.  Who’s got time for that?

This week’s economic calendar is relatively light.  The highlights include a 10-year treasury note auction on Wednesday, jobless claims on Thursday, and the Consumer Price Index (CPI) on Friday.

Inflation is the primary driver of mortgage rates so any signal that price pressure is increasing in the CPI would not be favorable.

From a technical perspective I am keeping a close eye on the US 10-year treasury note (which home loan rates tend to track).  It is currently yielding 2.48%.  It has not traded above 2.50% in nearly a year. Recent attempts to break through 2.50% have resulted in lower interest rates.

If the yield on the US 10-year treasury note breaks through 2.50% then watch out.  I would expect mortgage rates to worsen by another .125%-.25%.

However, if they can hit 2.50% and bounce lower then we may see mortgage rates improve by .125% or better.

Current Outlook: floating as long as the US 10-year treasury note yields less than 2.50%.