Market Update 10/20/2017
Mortgage Rates are set to open higher this morning as yields on U.S. Treasuries spike on news of a budget deal that will pave the way for tax reform.
There has been little in the way of economic data reports this week which has left markets to focus solely on politics.
News circulated late last night that the U.S. Senate had passed a budget resolution, a key step on the way to passing a tax reform bill. Once Congress approves a budget, it can start writing a tax bill that Republicans hope to pass this year. Bond Markets reacted off this news sending the 10 Year Note yield to 2.38%, its highest level since July.
Also adding fuel to the fire was news that President Trump has narrowed his search down to 2 candidates for the open Fed Chair position next year. The finalists are Federal Reserve Governor Jerome Powell and Stanford Economics Professor John Taylor.
Jerome Powell is seen by markets as more dovish than Taylor. Markets think he would be similar to Janet Yellen with his rate hike path and will be data dependent. John Taylor on the other hand is seen as more hawkish than Yellen. Taylor in 1993 introduced the so- called Taylor Rule, which is an interest rate forecasting model that today serves as a guideline for how central banks should set their rates to achieve their long term goal of price stability. Markets believe rates will rise much faster if he is Fed Chair.
We have traded range bound for most of October. The 10 Year Note yield has stayed in a tight range of 2.28% to 2.36%. Today we are breaking through that range and mortgage rates are
pushing higher. I would not panic yet. We have seen sharp rises in rates several times this year only to watch them fall quickly back lower. Without any new economic data to digest markets are solely focused on what’s going on in Washington D.C. and we all know how volatile that is.
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