In the pre-internet days of the mid-1990s, we would call the “Bond Market Hotline” on the telephone (with a cord 😊) several times per day to see how the 10 Year Treasury was performing.
This is because the 10 Year correlated so closely to mortgage rates. If the 10 Year prices were falling, for example, we knew to lock quickly before rates went up.
This tight correlation between the 10 Year Treasury and mortgage rates no longer exists, and I blogged about it last week.
I cited another blog detailing how mortgage rates remain artificially low because the Fed continues to buy numerous mortgages (or mortgage backed securities (MBS), to be more precise).
But later in the week, I saw this column in Mortgage News Daily: Mortgage Rate Rules Completely Out the Window.
The author of the column ignored MBS purchases by the Fed, and instead insisted rates remain artificially low because lenders have simply tightened up margins (or how much they make on every loan).
He stated that mortgage lenders were able to push up their rates artificially high last summer because demand exceeded supply, and that mortgage lenders are just now lowering their profits because demand has decreased and capacity has increased (keeping rates low).
10 Year Yields Have Climbed 40 Basis Points (4/10s of 1%) Since August, But Mortgage Rates Have Barely Moved – Why?
Is it MBS purchases or tightening margins that are holding rates down?
I called one of the most sophisticated secondary market guys I know to get his opinion, and here is what he said:
“We have not changed our margins at all, and I have not seen a major uptick in MBS purchases either.” 😊
So, what I think we are really seeing in the above two articles is the scourge of modern-day journalism: Confirmation Bias.
Both authors saw how mortgage rates no longer correlate to the 10 Year, drew conclusions, and then found evidence to support their conclusions.
My Theory As To Why Rates Remain So Low: Kool-Aid Mustaches
I think rates remain so low because there are more kids than ever with Kool-Aid mustaches.
To prove my point, I started to knock on my neighbors’ doors to find kids with Kool-Aid mustaches.
And sure enough, after knocking on 1,000 doors, I found seven kids with Kool-Aid mustaches.
This was proof enough for me because I have not seen ANY KIDS with Kool-Aid mustaches since 1972, when Mrs. Schleifer made two full pitchers of Kool-Aid and let us drink as much as we wanted!
That is a true story too.
I might add that while I was pedaling my Sting-Ray bicycle (with a banana seat) to Mrs. Schleifer’s house, I saw a large snake crossing the road.
Like all normal midwestern boys, I naturally caught the snake and brought it to Mrs. Schleifer’s (to actually show it to her son Jon who had invited me to the Kool-Aid-A-Palooza).
But, Mrs. Schleifer was NOT impressed, much to my dismay (because who doesn’t like snakes???)
So, she made me throw it outside the house, and it promptly crawled under the house and had babies. 😊
Then Mrs. Schleifer had to call a pest removal specialist, and she was even more unhappy with me.
Moral of the story? There isn’t one because who doesn’t like snakes?
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