The 10‐year yield rose another 13 bps last week to close the week at 2.13%. The yield is now up 52 bps for the month of May alone. Not only are longer maturities selling off, but the belly is as well. You can see that in the yield difference in the 2Y‐ and 5Y‐Treasuries. That spread has widened from less than 50 to over 75 bps. This is giving fixed income buyers an opportunity to find some value in shorter bonds. It also brings old strategies like rolling‐down‐the curve back into play.
As yields have risen,so have mortgage rates. In fact,the Fannie Mae Commitment rate has now risen to its highest level in over a year. Thirty‐year mortgage rates are now up over 60 bps in May alone. It will be interesting to see when this starts to bother the Fed. Housing is so critical to the economy right now that they could be forced to come in and try to talk mortgage rates back down.
The Market Outlook
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