Mortgage Rates Rise, As 3 Milestones Point to a Turn in the Interest-Rate Cycle

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Mortgage rates were higher on Tuesday. The average 30-year mortgage rate is higher, at 4.05%, which equates to a $480.30 monthly payment per $100,000 borrowed. A month ago, the equivalent payment would have been lower by $16.05.

The average 15-year mortgage rate, at 3.19%, equates to a $699.76 monthly payment per $100,000 borrowed. A month ago, the equivalent payment would have been lower by $10.14.

5/1 ARM: ADJUSTABLE-RATE MORTGAGE WITH AN INITIAL FIXED five-YEAR INTEREST RATE. DATA SOURCE: BLOOMBERG. RATES MAY INCLUDE POINTS.

Interest rates: The "turn" is in as the 10-year yield breaches a new level

Another day, another milestone in what may well prove to be the long-awaited (delayed?) "turn" in the interest-rate cycle. On Monday, the yield on the 10-year Treasury note broke through the 2.50% level on an intraday basis, reaching 2.5262%, according to data from Bloomberg. That's the highest level since Sept. 29, 2014.

You won't quite see that on the following three-year graph, which goes only to last Friday and doesn't capture intraday highs, but it's enough to visualize the sharp rebound in the yield off its July bottom, when it sat below 1.50%:

Could this reversal be nothing more than a "head fake"? It's possible: The yield mounted a steeper climb between May and December 2013, when it eventually peaked just above 3%. However, it's worth noting that the post-crisis low of 1.36% was recorded this year. At this stage, there is every reason to believe the cycle has turned.

Banks' "Trump rally" achieves two more milestones, restores value

Banks make their money on the difference between long-term interest rates at which they lend and short-term rates at which they borrow. That difference is known as the yield curve spread. Though the increase in the 10-year yield has not been passed on in full measure to this spread (i.e., short-term rates have increased also during the same period, partially offsetting the rise in the 10-year yield), shares of lenders have strongly outperformed the broad market during the post-election "Trump rally."

In an article titled "Everyone Loves U.S. Banks," Bloomberg's Lu Wang notes that bank shares have "surged 17% since the Nov. 8 election to the highest level in almost nine years." The author further cites a Bank of America/Merrill Lynch report, according to which the proportion of global asset managers that are overweight the sector is higher than it has been since at least 2002.

These milestones are significant because in the post-crisis, the banking sector has become a closely watched indicator of macroeconomic stability and investor confidence. Wang warns that "it might be time to start worrying about the bank rally." Bank shares may be overbought in the short term, but, far from a source of worry, this Fool views the post-election rally as corrective for a sector that has remained stubbornly undervalued for years.