Econ 101: DO NOT BET AGAINST THE FED. The Fed will be putting on the brakes, the bond market is reacting ahead of it, and the public has not felt it yet......operative word is YET.
10 Year US Treasury rates increased a substantial 15bp this past week (see black line)
As the 10-Year increased 15bp, the 30-year mortgage rates increased only 2bp. This caused the spread to decrease 13bp and the ending spread winds up at 14bp above the historic spread of 168bp.
Given we are in a rising rate environment, a 14bp spread is not much of a cushion. It is likely that the 30-year mortgage rates will increase in the near future.
As rates rise, there will be a surge in mortgage applications as people try to lock in lower rates. This will put additional profitability pressure on the loans that are in the pipeline----especially for lenders who do not have a locked-in cost of funds. The loan rates to the consumer are locked while their COF floats and is not known until funding closes. With Income fixed and costs rising---it will tank the profitability spread of the pipeline inventory.
It is one of the main reasons why rates ROCKET UP and FEATHER DOWN in an increasing or decreasing market.