The first week of March saw some dramatic events in the financial world. Silicon Valley Bank experienced a bank run that led to the federal government taking action to contain the contagion. This caused bond traders to become cautious and look for higher yields and rates. However, when they started buying the 10-year yield, mortgage rates actually fell.
Despite a stronger than anticipated jobs report, the 10-year yield couldn’t break higher and reversed to go lower on Friday. As a result, mortgage rates fell to a low of 6.76% on Friday, down from the high of 7.05% the previous week.
In terms of the housing market, purchase application data rose by 7% weekly, although it was still down 42% year over year. Weekly inventory also fell, while new listing data was noticeably lower than last year.
Looking to the future, it is predicted that the 10-year yield range will be between 3.21% and 4.25%, equating to mortgage rates of 5.75% – 7.25%. If the economy weakens and there is a rise in jobless claims, then the 10-year yield should go as low as 2.73%, translating to 5.25% mortgage rates. However, with the current economic data showing no sign of a weakening economy, this prediction remains the same.
Following the bank run at Silicon Valley Bank, the government took action to prevent future bank runs and save depositors. The 10-year yield is now trading at lower levels, and the future pricing of a .50% rate hike has already collapsed.
The question now is whether the Fed is done raising rates or whether they want to avoid further stress in the markets. Some believe that the Fed could have claimed victory by front-loading rate hikes and called it a day, but instead they chose a more aggressive approach. It remains to be seen whether this was the right decision.