Mortgage Rates SHOULD Have Fallen Yesterday, But They Didn't

It's Thanksgiving Week and already we're seeing the effects that vacationing traders are having on markets.  Out of nowhere, mortgage bonds rallied late yesterday, pushing mortgage bond yields downward in the last hour before the market closed.

Typically, mortgage rates will mirror the yields of mortgage bonds, dropping when yields drop and rising when yields rise. 

Yesterday?  No such luck.

Ever protecting their profits, mortgage lenders chose to ignore the rally and many held their respective mortgage rates unchanged.  This created a small "spread" on which the banks could earn extra revenue.

Now, if the situation had been reversed and bond yields were heading north, you can be sure lenders would have been quick to adjust their rate sheets.  This pattern is the genesis of a famous saying:

Mortgage rates take the elevator up, and take the escalator down.

In other words, mortgage rates are much quicker to rise than to sink.

The thin trading volume that created yesterday's overblown rally will persist today and volume should thin even further through tomorrow's market close.  By Friday, markets will be a shell of their normal selves.

Remember: Fewer traders = lower volume = more rapid mortgage rates changes because fewer traders available to buy mortgage bonds when somebody is selling them; or, vice verse.