Naturally, if it is in fact Bernanke who blinks first, the consequences for mortgage rates could be so dire, even Bloomberg has finally picked up on the issue.
Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds climbed to 4.3 percent as of 10:25 a.m. in New York, the highest since March 10 and up from 3.94 percent on May 20, data compiled by Bloomberg show.All that talk of cheap refinancings is now officially out of the window, and all the recent mortgage refi activity which has been the primary reason for banks benefitting from the abovementioned 2s10s curve will cease shortly, absent another major overhaul of Quantitative Easing. So the market is basically saying that it will now only believe the inflation rhetoric if the Fed is willing to throw another $1 trillion in UST/MBS purchases. As Zero Hedge discussed, the Fed's balance sheet is already at a pro forma level of about $3.2 trillion: what happens if its hits the $4 trillion+ stratosphere is anyone's question. In the meantime, stocks continue trading on no volume, hugging the flatline as if everything is hunky dory, totally oblivious to the Nightmare on Elm Street mauling that is going on in the mid/far end of the curve. In fact every micro uptick in the S&P500 (likely the result of a latency burst catching up with the SLPs over in the NYSE) causes another major selloff in 10 Years.
Chart hat tip The Irish Menace, Credit Trader.
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