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Mortgage rates are ideally set only once per day, for several hours during the business day. This gives mortgage lenders time to observe a baseline for trading levels in the bond, determining what they can charge. But those bonds trade throughout the day and if things go bad enough, lenders can change rates in the middle of the day. Today was one of those days.
The major consideration for bonds/rates at the moment are the fears and risks surrounding the global banking system. High profile bank failures have prompted investors to ask “Who’s next?” A downward spiral of sentiment ensues and, left unchecked, can wreak havoc on the financial markets.
Regulators and other bankers have learned lessons from past examples of this type of panic spiral. He acted quickly. The Swiss national bank provided a lifeline for troubled Credit Suisse and several domestic banks pledged to return the republic’s deposits earlier today.
It was the latter, in particular, that caused a reversal in the financial markets. Stock and bond yields moved higher in unison. Higher bond yields mean higher interest rates.
The average borrower is back in line with Tuesday’s levels, or close to them. That means 30-year fixed rates are headed back into upper 6% territory for the top-tier scenarios.
If contagion continues to subside, there is more room for rates to rise. There is also some scope for rates to go down if the contagion scare flares up again. The headline cycle will determine what our adventure looks like between now and the Fed’s announcement on Wednesday afternoon next week.
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