Interest Rates

Real Estate Broker/Owner with Marie Bost~Broker~Edisto Real Estate

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%.

Comments (3)

Kirsten Lindquist
Pacific Union International - Sonoma, CA
Realtor - Sonoma Wine Country

Just goes to show how economists can have incredibly opposing views.

Apr 13, 2010 08:26 AM
Johnny Sabic - North Atlanta, GA
Atlanta Real Estate

This is very good article. I think treasury yields is more realistic at 4.24%


Atlanta Homes for Sale

Apr 13, 2010 08:32 AM
Deborah "Dee Dee" Garvin
C2 Financial - San Diego, CA
C2 Financial

Personally, I never look at a rate sheet unless I am locking a loan!  It has always amazed (and amused) me the amount of energy finance people put into the contemplation of where rates are going.  In fact, I have noticed that a lot of my industry colleagues are so "change" adverse that they spend hours and hours fretting about rates. This is entertaining for two reasons:  1).  Individually we have absolutely no control which way rates will go and 2).  Being "change" phobic is a career that is build upon market fluctuation and volitility is pretty funny.

This is for certain:  Rates will either go up, go down or stay the same.  My job to ensure my clients get the best possible transaction to meet their goals, within market parameters.

In the meantime, all I need to do to appreciate today's rates is to remember the good old days of 13%, 15%, 18%....up or down, we're in Heaven!

Apr 13, 2010 08:35 AM