Interesting article from one of my Lenders.
We saw a late week improvement in rates as the 30 year finished at 5.125%.
Where do the experts think rates are headed in 2010? Yield Views Couldn't Differ More (WSJ 4/09)
There are very contrasting views from two of Wall Streets most respected firms. Morgan Stanley and Goldman Sachs are the two best economic forecasting teams of the past tow years and they could not disagree more on the direction of treasury yields. The 10 year treasury yield has a direct impact on the direction of mortgage rates. The lower the yield the lower the rate the higher the yield the higher mortgage rates will rise. The current yield sits around 3.94% which puts the 30 year mortgage rate at 5.125%. Morgan Stanley believes the 10 year yield will end the year at 5.5% which is the highest in its peer group. This yield would push 30 year fixed to the 7.0% range by year end. Goldman Sachs says yields are headed back down to 3.25% which would push mortgage rates below the 5.0% mark again.
Morgan Stanley View
•- market cant withstand $2.4 trillion of debt the U.S government is expected to sell this year without yields rising...largest issuance in history
•- believe the economy, private credit demand, and inflation expectations will rebound more quickly than analyst think
•- have target yield of 5.5% which puts 30 year fixed rates at 7.0% by year end
Goldman Sachs View
•- view record government borrowing is merely replacing missing private credit demand, which will return slowly
•- unemployment, and other measures of economic "slack" will remain high, snuffing inflation, which helps contain mortgage rates lower
•- believe treasury yields will be around 3.25% which puts mortgage rates at the 5.0% mark or below
There is still strong demand for treasury bonds as a Wednesday auction brought the strongest demand for the 10 year treasury since 1994. If you believe the economy is on a steady road to recovery rates will follow this view higher. If you believe the economy will remain flat to down then mortgage rates should stay in the low 5.0% range. The consensus for treasury yields is 4.24% by year end. This will push mortgage rates to an estimated 5.5% - 5.75%.