Bond Yields/Interest Rates Soar! Uh Oh! What’s Really Scary?

Panic In The Room!

I was at a mortgage conference yesterday with 50 of the biggest producers in the industry, and there was panic in the room. The reason? The bond market was melting down in response to a much higher than expected “job openings” number from the “JOLTS” report.

As a result, mortgage rates hit a new 23-year record high (and then some). So – how worried should we all be? We should worry, but NOT for the reasons you might think.

A few interesting observations about the guys in the room:

1. Many had loans they “floated,” meaning they did not lock in rates for borrowers in contract for various reasons. This is why we always encourage people to lock in rates as soon as they can, as nobody will ever know which way rates will go with certainty.
2. Only some panicked. “Panic in the room” is a bit of an overstatement, as many of the old salts hardly blinked, saying things like … “we’ve been here before, and rates will come back…” (And sure enough, rates did come back today)
3. Most of them had loans to worry about because they remain busy. It always fascinates me to see how top producers remain top producers irrespective of market conditions; they apparently didn’t get the memo that the industry has slowed down. It was a nice reminder too that no matter how high rates get, there is still a ton of business out there.

Mortgage Rates Are Now In The 8% Range

I was on a panel last year with a young real estate agent who proclaimed that rates would hit 8% in 2023! And – I laughed and said… “No way!” But, sure enough, we are quoting many rates in the 8% range. This is me, admitting I was wrong (again). I encourage people to read this blog if they want to see why I was so wrong: Why I Was So Wrong.

So – Will Rates Continue To Climb?

Renowned bond investor/former PIMCO manager, Bill Gross, was on CNBC yesterday saying that bond yields could climb another 0.25% (so mortgage rates would climb by that much or more too), but probably not much more.

Rates already came down today – in response to a FAR LOWER THAN EXPECTED JOB CREATION NUMBER, from a more reliable and more recent ADP report.

And Jeff Snider of course dove deep into the data yesterday as well, reminding us that the JOLTS job reports are the least reliable of all employment reports and that they constantly get revised.

He also reminded us that: (1) unemployment shoots up after we are in a recession; (2) consumer confidence is down again; (3) job quitting is flat to down – another pending recession sign; (4) real, inflation-adjusted, income is down; and (5) that personal savings levels are at record lows.

Other analysts screamed about rising bankruptcies and credit card defaults. And Snider also reminded us that we often see bonds melt down at this time of year.

In other words, we remain on the brink of a recession which will put the “Higher for Longer” narrative to shame.

What Is Really Scary?

The below chart is what is really scary. Every time we see a sharp rise in bond yields, like we are seeing now, a “financial accident” occurs – some (like the 2008 meltdown) being worse than others. But – ALL resulted in lower rates (and lower stock prices in most cases – so I hope readers are “in cash” – even though these blogs should never be considered financial advice).

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