When the Treasury announced last week that it will begin selling its remaining $142 billion in agency-guaranteed mortgage-backed securities (MBS) holdings, mortgage rates inched up a bit. This happens because of the law of supply and demand. When supply is high, the price goes down and MBS becomes a favorable investment. Mortgage Rates are inversely tied to MBS prices so rates naturally rose.
If the Treasury has $142 billion to sell off, whats going to happen to mortgage rates if the Federal Reserve makes a similar announcement to sell it's MBS portfolio of $944 billion!
The Treasury purchased the MBS under the Housing and Economic Recovery Act of 2008 to help preserve access to mortgage credit and promote economic stability. Since then, the market for these securities has improved.
If the Treasury continues to wind down emergency programs, we can look at this as a sign of a healthier economy to come. Mortgage rates have been artificially low to help stimulate the housing market and the overall economy. Higher mortgage rates (within reason) means we are getting healthy again. It means businesses are hiring and people are working. Isn't that what we really want?
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