Concerns about the pace of global economic growth and continued violence in the Middle East helped mortgage rates improve this week. Very strong demand for this week's longer-term Treasury auctions was also favorable. As a result, mortgage rates moved lower during the week.
The fighting in Libya continued this week, and violence spread to Saudi Arabia. Geopolitical tensions generally benefit bonds as investors seek out relatively safer assets. Unrest in oil-producing nations has the added impact of pushing oil prices higher. When consumers and businesses must spend more for energy, they have less money to spend on other items. This slows economic growth and can reduce expectations for future inflation, allowing investors to accept lower yields.
Extremely strong demand for this week's 10-year and 30-year Treasury auctions reinforced the view that many investors are seeking to reduce the risk in their portfolios. Despite budget deficit concerns, US government-guaranteed securities remain one of the primary "safe" assets for global investors. Demand for the longer-term auctions was well above average from both foreign and domestic investors. Increased demand drives bond prices higher and yields lower.