Mortgage Dynamics: Why the 10 Yr Treasury Fails as Benchmark to Track Rates

The Treasury has long been the benchmark for tracking mortgage rate movement, i.e. 30 year fixed vs. 10 year Treasury. Based on the market over the last couple of months, that has not happened. The folloing graph will give you perspective on why the models are not following the traditional pattern.

30Y CONF FIXED vs. 10Y TREASURY

30Y CONF FIXED vs. 10Y TREASURY, California, Contra Costa, Mortgages, Loans, Bank of America

Why are mortgages widening or losing value vs. other benchmarks like treasuries?

1.  Lack of buyers.  Dealers' balance sheets are full and market volatility.
2.  Banks more concerned with capital retention to cover potential losses.  Defensive posture following write-downs totaling > $120 billion.
3.  Asia absent - lack of strength in the market.
4.  Money Managers & Hedge Funds - momentum trading.
5.  Originators and Servicers have been selling.
6.  Investment Firms - margin calls have forced liquidation.
7.  Flight to Quality

 

 

 

We have more sellers than buyers.  The selling bias puts pressure on mortgages, forcing mortgage prices lower and wider.  The usual buyers of mortgages aren't buying or are buying other investments at cheaper prices

Historical View of Volatility

Credit and liquidity concerns stemming from the sub-prime fall-out that has also flowed through to the prime-A market has caused the correlation between the 10Y Treasury and mortgage yields to break down.

 Treasury Volatility, California, Contra Costa, Mortgages, Loans, Bank of America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  



You can find AJ Nisen on Active Rain at Contra Costa California Mortgages.  Call AJ to talk about Mortgage Rates, Free Credit Report or visit AJ's website to use his mortgage calculator. 

Alan 'AJ' Nisen
Mortgage Loan Officer
Email: aj.nisen@bankofamerica.com
http://mortgage.bankofamerica.com/ajnisen 
http://www.activerain.com/ajn

 
Post is included in group: Everything California
Post is included in group: 1st Time Buyers

4 Comments on Mortgage Dynamics: Why the 10 Yr Treasury Fails as Benchmark to Track Rates

Alan, this is great...it's hard for us REALTORS to truly study the current mortgage market and this is very helpful!

03/19/2008 04:21 PM by Lake Norman Real Estate ~ Diane Aurit (RE/MAX at the Lake)

AJ, I know the market is all over the place when it comes to getting a loan. If I don't have a perfect buyer with oodles of money, it is a challenge - and it's from day to day! Hopefully the lenders will come around, or the investors. Meanwhile, I just keep working with the high score borrowers.

Pepper

03/20/2008 12:04 AM by Mesa, Arizona Real Estate *** Teri Ellis, Broker, ABR,CRS,GRI,ePRO,MRE (Homes Arizona Real Estate LLC)

Diane, Thanks.
Teri, I love high score borrowers too.  Especially if they have high incomes and assets. 
aj

03/20/2008 12:17 AM by Alan 'AJ' Nisen California Contra Costa Mortgage Officer (A Large Bank in America)

AJ,

Thanks for posting useful content in this post.  I'm signing up as a subscriber, and adding you as an associate.  Now I'm off to see what else you've written.

Mike in Tucson

03/22/2008 12:00 AM by Mike Jones (Tucson Mortgage Company, LLC)

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Loan Officer: Alan 'AJ' Nisen California Contra Costa Mortgage Officer (A Large Bank in America)
Alan 'AJ' Nisen California Contra Costa Mortgage Officer
Lafayette, CA
More about me…
A Large Bank in America

Office Phone: (925) 688-3820
Cell Phone: (925) 963-5836
Email Me
AJ, as part of the Active Rain family, uses this forum to discuss issues that affect the Real Estate market, all aspects of Mortgages, Loans and refinancing, to build working relationships and friendships. AJ’s conversations include such topics as, the sub prime lending fallout, mortgage market changes, and localism (revitalizing downtowns, business growth, community volunteerism and events)



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