What is going on?
Well, investors have been on edge about higher inflation for months, then yesterday 2 bombs dropped. First, inflation (CPI) came in at the hottest print in 40 years at 7.5%. The second bomb was when Fed Chairman Bullard called for a 1% rate hike by July 2022. When inflation rises and the Feds increase borrowing cost, is devalues bonds, so bond holders are selling their positions because the bond holdings will be worth less in the near future (nobody wants to take a loss on their investments, right??). The flight to protect gains is creating a massive snowball selling in the bond markets.
REMINDER: when bond prices go down, rates go up (and vice versa)
In addition, the Fed is no longer buying bonds, then are selling them to clear them from the balance sheet (excess supply also drawn down prices = econ 101). See charts of mortgage bond prices since last Friday below:
The mortgage bond market is now down 130bps in 5 trading days. When will the selling end? Who knows, but that is the million dollar question.
Bottom Line: recommending clients lock as soon as escrows open!