Treasury yields move up, mortgage rates follow
May 28, 2009 by admin
The yield on treasury bonds jumped sharply this week and long term mortgage rates have risen to their highest level in the past six months. The yield on the ten year bond, closely followed by economic insiders as a telling sign of the future of mortgage rates has been steadily increasing since early March. This week the ten year bond rose over twenty basis points and jumped up to 3.75% on Wednesday, shooting up almost 17 basis points on Wednesday alone. The move represents investors looking to rebalance their portfolios and possibly eyeing an exit out of the mortgage bond marketplace. The large jump in the yield, helped to drive up fixed rates on mortgage loans by almost .375% with most national mortgage lenders.
The current state of the economy makes it difficult to predict where mortgage rates are headed in both the near and long term. The majority of economic news that is being released reinforces the challenges with an economy that has many struggles ahead. The uptick in consumer confidence was a good sign for the market, but one that should have been anticipated following a record surge with the stock market. Thursday, brought on more news that indicates their will be additional challenges in correcting the market. New home sales are still struggling and home foreclosures are moving up with no slow down in sight. The good news of the day, was an increase with durable good sales, a brief indication that the manufacturing industry may be slowly trying to right itself.
Fixed mortgage rates will be a major focus for the government as they attempt to stabilize the housing market. The FOMC has moved in on two occasions over the past six months to help stabilize rates with commitments to purchase mortgage bonds on the secondary market. The challenge the FOMC will face moving forward, is the ever expanding surplus of government debt that needs to be financed. The amount of debt in the marketplace, challenges the opportunity to keep rates low as investors anticipate long term rates will need to move upward. Investors tend to move in an out of the bond market, as they balance investing into equity positions. If equity (stock) positions continue attracting more investor dollars, additional pressure is placed onto bonds as they work in a demand/supply economy. The synopsis is that if the economy continues to take baby steps toward improvement, and investors believe that equity positions offer more upside, long term rates will move up, regardless of the governments desire to keep rates low. It is hard to imagine fixed rate mortgage loans, retesting the lows (4.75% on thirty year loan terms) that were available in mid March, but rates under six percent are still very attractive and offer good historical value for consumers buying or refinancing their home mortgages.