Bad News: Mortgage rates/bonds yields are going up
Posted by Frugal on March 11th, 2008
I’ve opined before that a “coming” panic low in stock markets should give you another good chance to refinance or get your loan. However, things are unfolding in ways that I didn’t expect.
Yes, stock markets are going down.
Yes, treasury bonds are going up, which means that rates are going down.
But oh NO! Fannie Mae and Freddie Mac are imploding right now along with the credit markets, and their bonds (with implied government guarantee) are falling instead of rising along with treasury bonds.
And one more thing is that 30 year bond yields are not falling as much as 10 year bond yields due to inflation threats. So if you depend on a 30-year mortgage, your rates will probably be less good.
Since most mortgages are tied more to these GSE bonds, rather than treasury bonds, mortgages rates are going up a little instead of down.
It’s tough to see how things will unfold, but if the recent history is of any indication, you won’t get a mortgage deal at the stock market panic low, which appears that it’s going to be synchronized with the falls in FNM and FRE.
Due to this very reason, I suggest that you may want to lock your mortgage rate, if you cannot tolerate further rate increase.
I still think it’s possible for mortgage rates to come down maybe in summer or later. Federal reserve most likely will need to monetize the long end of the bond markets now. Alternatively they can probably watch the housing markets this year to go up in a bigger flame and more smokes.
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March 11th, 2008 at 7:26 am
Mortgages are linked to the 30 year bond, and thus wont be directly reduces by the Fed cuts. Those looking for shorter term ARM refinancing will benefit….only a temporary reprieve in my opinion.
Now if inflation continues to climb, and there’s no doubt it will thanks to the printing press Fed, this will directly impact bonds as their yields will have to increase to keep them attractive. No one is going to want to buy a bond that’s paying out less than the inflation rate. This is what will drive up fixed mortgage rates.
This begs the question- who is the Fed really helping with these rate cuts? Looks like they are helping Wall Street at the expense of Main Street.
March 11th, 2008 at 10:48 am
What is optimum rate to lock based your observation.. I locked 5.75% with .125 point .. was it reasonable ?
March 12th, 2008 at 12:33 am
Lakshmanan,
Is that a 30 yr rate, with fee? I think it’s not too bad. I believe the lowest that can be achieved this year is probably in the neighborhood of 5.375% to 5.5%. So you are only 2/8 to 3/8 off, which is reasonable.
Soullfire,
I agree with you. Fed’s cut is mostly saving banks & wallstreet.
March 12th, 2008 at 6:16 am
Yes..i think the Mortgages link up will not definitely reduce by the FED cuts and recession in the U.S economy may also effect and be a factor.
March 12th, 2008 at 10:21 am
y 30yrs, with .125 and 399 fee.