Mortgage Rates Go From 2010 Lows to 2010 Highs in One Day

Mortgage Rates Go From 2010 Lows to 2010 Highs in One Day

March 25, 2010 (MortgageNewsDaily.com)  

At 1pm eastern, the Department of Treasury auctioned $42 billion 5 year notes.  When our government lacks the cash to pay for spending, they must borrow funds from investors. They do this by selling debt (Treasury bills, notes, and bonds).   

Market participants gauge the success of auctions by tracking demand.  Tuesday's auction of 2 year notes saw below average demand which pressured treasury yields higher.  The same thing occurred again yesterday. Demand was low and benchmark Treasury yields continued to rise after the auction results were released at 1pm.   

How does this all relate to mortgage rates? 

The closest index to follow what mortgage rates are doing is the Treasury Bonds, specifically the 10 year Treasury.

Treasury bond yields and Mortgage yields (MBS: Mortgage Backed Securities) typically move in the same direction.

When the price of treasuries goes down and yields go up, mortgage interest rates will likely go up as well, which is exactly what has happened.  The last 2 day's treasury auctions provided very little demand, which caused prices to be lowered and yields (rates) to go up.  When yields rise on MBS and Treasuries, investors take away higher profits (yields), until prices level back out. 

So to recap yesterday, benchmark interest rates started rising early in the trading session and didn't look back.  Positive Durable Goods Orders data also pushed rates higher.  Then poor demand at the five year Treasury note auction intensified bond market selling. After that, buyers basically gave up hopes.  This pushed rates even higher.  Over the course of the day, the 10 year Treasury note yield raised 16 basis points, MBS prices plummeted on more than one occasion and lenders were forced to re-price for the worse, more than one time!

This may indeed, be the indicator that we have been anticipating that mortgage interest rates will begin to rise.  It is time for buyers to get off the fence and purchase their next home before interest rates rise even further.  Call us to help you find your dream home today!