Mortgage Rates Respond to Treasury Auction
Mortgage
rates moved a bit lower today following a
well-received 30yr Treasury auction. Treasury yields don't directly
dictate mortgage rates, but Mortgage Backed Securities (MBS) that actually do dictate rates - tend to come along
for the ride when Treasuries make big moves. That's what happened today. The most prevalently quoted conforming 30yr
fixed rate for best-case scenarios still is at 4.375%, but 4.25% is in the picture.
Treasury
conducts auctions for its various maturities once a month, and today's 30yr
Bond auction was the last of the week. This is important because primary
dealers (the biggest financial firms that buy debt directly from the government)
are required to bid on Treasury auctions. That means there is a
certain amount of apprehension as to how the auctions will go, and occasionally
a certain amount of relief when they're over. Sometimes the auctions go
better than others and sometimes that 'relief' is more pronounced. Today
was a 'win' on both accounts.
The
strong auction results were accompanied by headlines out of Iraq as well as
heavy selling in stocks. Both potentially contributed to the move lower
in Treasury yields. The secondary mortgage market was merely a bystander,
but willing enough to come along for the ride.
This
move has the potential to mark a reversal from what has been a fairly pervasive
trend toward higher rates since late May. Considering that generally
strong relationship between Treasuries and mortgage-backed-securities, it makes
sense to keep an eye on 2.57% in 10yr Treasury yields. If we happen to be
moving lower from there tomorrow, it would be a good sign.
In
summary, what a difference a day makes! Markets were complacent yesterday, but
now today's 30 year bond auction today surpassed expectations and rates made a
stronger move. Looks like floating might be an acceptable risk. Be sure to tune
back in tomorrow.
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