Difficult day… Mortgage rates are falling significantly, but not because of the Fed

There is a clear risk that even in the financial world, people will look back at today's drop in interest rates and conclude that it must have something to do with the Federal Reserve's recent monetary policy announcement. After all, the Fed cut its key interest rate by 0.25% today, and the Fed was the only major event on the calendar.

Unfortunately, almost all of the rate improvements were implemented long before the Fed's announcement was made public. Here, too, it is not about the financial markets adjusting to an expected result. The Fed's rate cut was 100% expected, and Fed Chairman Powell didn't have anything too surprising to say (although the statement was memorable when asked if he would resign if the president asked him to).

Why have bonds/interest rates improved so much? We need to apply the same logic to earnings that we have applied to other election-related volatility. The election mobilized an enormous (and extremely volatile) amount of trading positions in the bond market and beyond.

We have experienced several interest rate increases that were just as bad as today's interest rate decrease. For many of these, we were able to simply take them in stride and attribute them to the exceptional volatility and highly charged environment. Today's friendly volatility is a constant invitation to these episodes, even if it feels like it doesn't show up as frequently as other guests.

To some extent, this morning's jobless claims data may have contributed, but there's no point in giving it too much credence until other data shows similar cause for concern (ongoing jobless claims are at their highest level in several years). years).

All in all, the bonds underlying mortgage rates reached their highest level of the day at 12:30 p.m. (a half hour before the Fed), and that was also their best level in several weeks. So it's no surprise that mortgage rates are back to their lowest level in several weeks, with the average lender just below 7.0% for the first time since October 25th.