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Investing.com -- Shares of Rocket Companies (NYSE:RKT) fell 5.4%, UWM Holdings Corporation (NYSE:UWMC) dropped 3.4%, and LoanDepot Inc (NYSE:LDI) tumbled 4.6% after the release of inflation data that prompted a rise in yields, signaling higher mortgage rates ahead. The hotter-than-expected inflation report has intensified concerns that the Federal Reserve will maintain its current interest rate policy, rather than cutting rates in the near future.
The Consumer Price Index (CPI) for the 12 months through January rose by 3.0%, surpassing the previous month’s 2.9% increase and economists’ forecast of 2.9%. This uptick in inflation has directly impacted U.S. 10-year yields, which climbed from 4.54% to 4.65%, suggesting that mortgage rates are likely to follow suit.
The rise in yields following the inflation report is a key factor affecting mortgage lenders, as higher rates tend to dampen demand for new mortgages and refinancing. This can lead to reduced loan originations and, consequently, lower revenues for companies in the mortgage industry. The immediate reaction in the stock market reflects investors’ concerns over the potential impact on these companies’ future earnings.
Investors closely monitor inflation indicators as they can influence the Federal Reserve’s decisions on interest rates, which have a significant effect on the cost of borrowing. In the current environment, where inflation remains above the central bank’s target, the likelihood of a rate cut appears diminished, which is typically unfavorable for stocks in the mortgage lending sector.
The mortgage industry has been facing a challenging landscape due to the rising rate environment, and the latest inflation data only adds to the headwinds these companies are encountering. As yields rise, mortgage rates are expected to increase, potentially leading to a slowdown in the housing market and impacting the profitability of mortgage lenders.
The market’s response to the inflation report and subsequent yield increase underscores the sensitivity of mortgage lenders’ stocks to interest rate fluctuations and the broader economic indicators that shape the Federal Reserve’s policy decisions.
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