10-YEAR TREASURY YIELDS HIT ALL-TIME LOW; MORTGAGE RATES DON’T ALWAYS FOLLOW THE 10-YEAR
There is so much talk about rates hitting “all-time lows” that I wanted to discuss it in a blog quickly.
10-year Treasury bonds are hitting all-time lows and then some, currently sitting at 1.16% as I type.
It is the 10-year Treasury yields that journalists most often refer to when discussing interest rates.
While mortgage interest rates correlate to the 10-year Treasury yields, they do not track those yields in lockstep.
Mortgage rates in fact often LAG the 10-year Treasury, and that is what we see happening today with many investors/lenders.
Many of our investors are actually quoting marginally higher mortgage rates today even though the 10-year Treasury yields are much lower today.
Mortgage rates lag the overall market b/c investors overall tend to move to Treasuries before considering mortgage-backed securities, so Treasury yields fall before mortgage rates do.
And, as mentioned yesterday, lenders sometimes keep their rates a bit higher in an effort to push off excess volume.
LONG TERM EXPECTATIONS – FED WILL CUT RATES; RECESSION LOOMING; TOO MUCH DEBT; RATES DOWN
Another cut in the Fed Funds rate now seems all but certain in an effort to fend off an economic slowdown.
In addition, numerous recession indicators continue to surface over and above coronavirus concerns, making it likely that there will be continued downward pressure on rates.
And lastly, the massive levels of worldwide debt at all levels (consumer, corporate, and government) are inhibiting discretionary spending so much now (b/c so much money is going to debt-service instead of consumption) that they will likely be a long-term drag on the world economy.
SHOULD BORROWERS WAIT TO LOCK?
No.
Buyers clearly cannot wait b/c they have a contractual obligation to close on a specific date.
Most refi borrowers should not wait either for a few reasons:
Refis are usually “no cost” so there is little risk to refinancing now;
Refi borrowers can refinance again at no cost six months after close – should rates drop further;
We monitor every borrower’s rate very closely, using sophisticated software, so no future refi opportunities will be missed;
And
While the overall trend in rates appears to be a continued decrease, rates could pop up again too, particularly if coronavirus concerns are held in check.
