What Happened The Last 2 Times Mortgage Rates Spiked Like This?

Tyler Durden's picture

Perhaps - as we are always reminded - it will be different this time but following this morning's surge in Consumer Confidence, we got to thinking, just why is everyone so confident? The facts are, as Citi's FX Technicals group notes, the last times we saw mortgage rates surge like they just have, that marked the peak in consumer confidence and the market followed shortly after. It seems that the Fed, by engineering ever lower rates, can lift confidence; but as is clear from this chart (and as we noted previously) there is a limit to this effect (ZIRP) and each cycle has diminishing returns.



Chart adapted from Citi FX Technicals

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maxmad's picture

But. But. Cant we just print more money?

THX 1178's picture

Oh we will maxmad, dont you worry about that...

icanhasbailout's picture

For fun, let's try to imagine the next Fed money printing program after they own every T-bill and mortgage security in existence.

Dr. No's picture

That's the great thing about paper, there is always more!

A Nanny Moose's picture

...till you run out of Other Peoples' trees.

orangegeek's picture

it's the Fed that prints money - when they buy US Gov bonds (debt).


when the Fed stops buying, rates have to go up to attract other buyers, like the Chinese.


and why does the US Government have to sell more bonds?  well to pay for all the make-work workers they've hired.


it would be easier to fire these lumps, but that's too easy.

maxmad's picture

Who do we owe the National debt too?

prains's picture

Carlyle Goup and Sons

NoDebt's picture

Single largest holder of US Treasuries:  The Federal Reserve.  Second is China.

Harbanger's picture

Yep, the US is borrowing from the future and owes most of the debt to itself.  China and japan only make up like 15% of the US debt.


Joe Sixpack's picture

The problem this time is that we have 1.5 QUADRILLIUON$ in notional derivatives ready rto collapse if anything changes.

Bastiat's picture


They don't just buy UST Bonds but have bought all kinds of crap in the past 5 years or so.

slaughterer's picture

Fuck mortgage rates.

Let us just ramp the ES with funny money as long as we can!

chubbar's picture

Little blurb from Bill Holter.

The button has been pushed...ready or not.

This week has started off miserably. China had problems within their banking system last night as bank transfers, ATM's, online banking and wires did not work. Europe announced that their E500 billion bailout fund for banks is no longer the case, they now say that 60 billion Euros will be the limit...retroactively. To put this in perspective, Spain had already been promised 100 billion Euros for their banking system, I guess the money is not coming? Our stock market has started the day down 230 points and the 10yr. Treasury yield is now 2.64%, this is another .12 basis points higher on the day and now nearly 70% higher than it was back in April.

As I wrote over the weekend, this is "one gigantic global margin call". Please understand how many of these interest rate derivatives work. When the rates go against you, "margin" must be posted. By "margin" I mean collateral. Collateral must be shifted from the losing institution to the one on the winning side. When the loser "runs out" of collateral...that is when you get a situation similar to MF Global or Lehman Bros., they are forced to shut down and the vultures then come in and pick the bones clean...normally. Now it is no longer "normal", now a Lehman Bros. will take the whole tent down.

To put in perspective what is happening, Zerohedge calculated that the Fed lost $35 billion this morning alone and $250 billion over the last 2 months http://www.zerohedge.com/news/2013-06-24/meanwhile-10-year . The Fed only has (had) $65 billion of equity capital yet in just several hours they lost half of it...again...this is because they hold $3.5 trillion in assets. This is the equivalent of a trader putting up $2 and buying $100 worth of assets, they have 50-1 leverage. They may not even be the most egregious out there, there are derivative contracts that are over 100-1 leverage that must post collateral each day, at least the Fed doesn't have to post any collateral against losses because they can be "trusted".

Can you see what is happening? The "button has been pushed" either on purpose, inadvertently or because "they had to". Banking laws over the last 3 months have been altered to allow "bail ins" where depositors lose rather than governments "bailing out" losing banks. Do you think that these laws were changed by mistake? Or inadvertently? No, the laws were changed because they KNEW this was coming. Now control has been lost in the sovereign government bond markets which are creating "losers" all over the place. The problem now is that the entire world's banking system is a chain, a daisy chain where if one goes down...they all go down. Yes yes I know, there are those running around saying "but we are hedged"...so there is nothing to worry about. Really? Someone, somewhere is on the losing side of the trade. With over a $1 quadrillion (with a big fat capital Q) derivatives market a 5% move creates over $50 trillion worth of winners and losers. Do you know of any institution that could absorb even a small piece of this? What if a JP Morgan took only 2% of this loss, could they pony up $1 trillion? Maybe... and only... if they could use customer funds would be my first thought

Unfortunately it looks like the U.S. Treasury market is experiencing some forced selling. This may abate and we may get a rally where everyone thinks "whew, that was close". This happens almost always during a crash sequence. "The worst is over" and confidence briefly comes back, this would not surprise me at all. Don't be fooled by this however as the detonation has already occurred and cannot be reversed.

I must confess that I had no idea that China's banking system went into seizure mode until I woke up this morning. I mention this because as you know I believe that when this comes it will be a Monday morning event. Will it be China? Japan or Europe? Surely not the U.S.?! Will it be the banks? Or will it be a broker, insurance company or even a sovereign govt. itself? I don't know and it really doesn't matter because the result will be the same no matter where "the chain breaks".

Please ask yourself this question, "if I woke up this Monday morning, today, in retrospect, and the world had blown up financially over the weekend where the banks did not open for whatever reason...would I have been ready for it? Maybe a bad question because NO ONE can ever really be ready for it but have you done everything that you think necessary? This is a very real question. What would you be doing right now if the banks didn't open this morning? Would you go to work? Would you be going nuts and trying to scramble to figure out a way to buy food for the next week? Would you be calling your broker to see if they could cut you a check (which no bank could cash until "later")? What would you be doing?

I could go on and on but you really do need to ask yourself this question now because the threat is not only real, mathematically this is what will come...whether you are ready or not. Regards, Bill H.

Never One Roach's picture

Thnx Bill Holter...that's a good summary. I do worry about waking up on a Monday morning to find the Fed has depreciated the dollar more rapidly then this slow drip devaluation we have now.



max2205's picture

who cares...nobody can afford a home...rent's the next big thingy

caShOnlY's picture

But. But. Cant we just print more money?



philosophers bone's picture

Consumer Confidence (see note 1)


(1)  "Consumer" = Jim Cramer after six cups of espresso.

ChacoFunFact's picture

i guess maiden lane funds are closed by now?

buzzsaw99's picture

I would like to see mortgage rates go sky high just for the amusement factor.

seek's picture

Same here for same reason, but substitute treasury interest rates.

resurger's picture

The docile will go for it, it's a sign of improving economy.

rubearish10's picture

Another incredible slice of evidence.

dontgoforit's picture

Run up; run down; repeat...

JLee2027's picture

DOCX executive of fraudclosure documents, sentenced to 5 years in prison today:



A former executive of Lender Processing Services Inc. (LPS) – a publicly traded company based in Jacksonville, Fla. – was sentenced today to serve five years in prison for her participation in a six-year scheme to prepare and file more than 1 million fraudulently signed and notarized mortgage-related documents with property recorders’ offices throughout the United States

buzzsaw99's picture

I'll take: Who is Linda Green? for $200 Alex.

swmnguy's picture

Interesting.  Lorraine Brown.  Linda Green.  Who's next to blame for all this, Lucille Black?  Lydia Blue?

lolmao500's picture

Consumer confidence is bullshit since most people are fucking idiots.

buzzsaw99's picture

And people who answer polls doubly so.

Bastiat's picture


Next time I get one of those I'll say: You want to know what I think?  Ask the NSA.

JuliaS's picture

- Sir, do you have time to answer a couple of questions?

- Yes.

- Are you confident?

- Yep.

- Thank you. Bye.


Winston Smith 2009's picture

"Consumer confidence is bullshit since most people are fucking idiots."

Like Carlin said, half of the people are on the left side of the IQ bell curve and to that I'll add that far too many on the other side of that curve don't come remotely close to using what they have.  Critical thought and reasoning are learned abilities which they apparently never acquired.

lolmao500's picture

And the more school you do, the lower your critical skills are... most of the time.

Winston Smith 2009's picture

For the tech and science related studies, no. That's where one can rapidly develop those skills. For business and economics studies, definitely yes.  Using the term "science of" in conjunction with "economics" is a joke.  Dogma, faith, and obsolete, proven to be wildly inaccurate theories dominate the ivory towers of economics.  

gjp's picture

3:30 Ramp Capital LLC reported for duty a little early today.  Everything is under control, equities taking out overhead resistance, bonds stabilizing, and gold barely has a pulse ... ZHers push back your collapse predictions another day!

orangegeek's picture

fuck!!!!  you're right!!!


rampapalooza is on!!!!


S&P up 10 points since 130p.  up 6 since 3p.


bend over everyone - Ben is driving.

Dewey Cheatum Howe's picture

Peak bubble. Consumer confidence surveys are nothing more than barometers of dumb money. They don't correlate with the health of the economy anymore in the inverted new normal. Artificially low rates = FED bubble blowing.

ziggy59's picture

When ZIRP goes ZIP...watch out!

earleflorida's picture

curious as to where the 'consumer confidance polls' are taken... could it be on a K-Street-Y 'yes' Lube?  

Translational Lift's picture

In the Bowery after a $20 drop.................

Nue's picture

Talked to the head FHA/Rural Development loan lady today. Yeah applications are down WAYYYYYYY down.

involuntarilybirthed's picture

All these scheduled reports are just a means to churn/manipulate the markets.  I just made that up but I'm sticking with it for a few minutes.

ziggy59's picture

China and US CBs got us covered...no problem

U.S. & Chinese Central Bankers Seek to Calm Markets

breakyoself's picture

must get S&P 1600 today

fonzannoon's picture

I see Mr. Gundlach has been reading my posts.....

Jeffrey Gundlach, highly regarded bond investor and CEO of investment manager DoubleLine /quotes/zigman/593786 DBLTX -0.18% , isn’t losing his bullishness on the bond market, despite the selloff in recent days.

In fact, quite the contrary: rising yields, paired with the risk of deflation, make bonds an attractive sector of the capital markets, he said in an interview with The Wall Street Journal on Tuesday. Gundlach told The Journal:

“There is a disconnect between rising bond yields and falling inflation concerns. It makes bonds doubly attractive. Investors would probably deeply regret exiting bonds and moving to cash.”

Gundlach sees the 10-year Treasury note /quotes/zigman/4868283/delayed 10_YEAR +1.77% yield, currently at about 2.58%, peaking at 2.75% in July.

In the recent past, he has said he sees the 10-year yield falling back toward 2%, making Treasurys a prime place to invest, despite being a “hated” asset class. But of course that was before Federal Reserve Chairman Ben Bernanke suggested the central bank may slow its pace of asset purchases later this year, prompting a selloff across asset classes. While Treasury yields have risen in the selloff, other asset-class yields have risen more, making haven government debt relatively less attractive.

Instead, Gundlach is focusing on agency mortgage-backed securities and dollar-denominated emerging-market corporate bonds. He explained to The Journal:

“We have been buying modestly in recent days and will probably increase exposure when the market settles down. A few months ago if you bought MBS, you got a yield of 1%. Now you can buy agency MBS of 4%.”

NoDebt's picture

If Bernanke was going to Jackson Hole this year it would be a lead-pipe cinch that's where he'd talk about "renewed weakness" and hint at plans to extend, probably increase QE4EVA.

I've said all along that they would jawbone about tapering to keep "speculators" in check while never actually getting to the point of tapering.

Not like there's goin to be any shortage of debt to buy.  Treasury market looking a little thin?  No problem, the government will be happy to unleash a new "stimulus" program and make more of it.

lakecity55's picture

haha, those stimulus programs are big profits for dick o's bundlers, who return 10% to his swiss account.