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After taking Wednesday’s Fed rate hike in stride, investors lost their appetite for bonds Thursday in a selloff that pushed mortgage rates to new 2022 highs.
Bond markets regained their footing Friday, with yields on 10-year Treasurys, a barometer for mortgage rates, retreating from a high of 3.77 percent. Strong investor demand for bonds and mortgage-backed securities pushes their prices up, and yields down.
But the renewed demand for bonds Friday could prove to be short-lived, if driven by a transitory flight to safety by investors. Former Dallas Fed President Richard Fisher told CNBC that he expects yields on 10-year bonds to hit 4 percent by the end of the year.
Stocks plummeted Friday on fears that, as the war in Ukraine drags on, ongoing moves by the Fed and other central banks to raise short-term interest rates to fight inflation will ultimately lead to a recession.
“The market thinks the economy will slow faster than the Fed does,” Mark Cabana, head of U.S. rates strategy at Bank of America, told the New York Times.
Mortgage rates hit new 2022 highs
The Optimal Blue Mortgage Market Indices, which are updated daily, showed rates for 30-year fixed-rate mortgages hitting a new 2022 high of 6.4 percent on Thursday.
While rates on 30-year fixed mortgages surged above 6 percent in June on similar fears, by Aug. 1 they’d retreated to 5.26 percent, with investors in mortgage-backed securities wagering that inflation would ease and the Fed would slow the pace of interest rate hikes.
But mortgage rates and Treasury yields have been on a steady upward climb since Aug. 1, as Fed policymakers continued to telegraph their determination to fight…