The bond market pain continues, after Fed minutes showed “some” FOMC members favored a rate hike in June, but ultimately went along with the pause. This adds to the already high probability the Fed will increase interest rates at this month’s meeting. Those in favor of a rate hike in June cited ‘tight labor market and stronger-than-expected economic momentum’, while inflation is still the ‘overriding worry’. Markets are under pressure with the 10yr rising to 3.94%. Shorter-term interest rates are now expected to climb to highest levels since before the financial crisis as the resilient US economy and rapidly loosening financial conditions compel the Fed toward further rate hikes. Mortgage are having a rough one; UMBS 5.5s are currently down 14 tics on the day, pushing mortgage rates to highs not seen since the beginning of the year. We get a bunch of data crammed in to the last two days of the holiday-shortened week, capped off by Friday’s employment report – expect a strong one.
Commentary by: Jeremy Collett, EVP, Head of Capital Markets
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