Market Analysis

Below is the response to the blog post question:

Question:

With the yields on 10- and 30-year Treasurys in steady decline over the last several days, why haven't mortgage rates continued to trend down as well? Over the last few days, the market for Treasurys has been improving significantly, the stock market has tanked, inflationary fears seem to be in check, but mortgage rates haven't moved - what's the scoop here?

Response:

Rates were running at the 4.375% level on a 30 yr fixed with approx 1 point in mid May. They jumped to the 5.375% level last week and have since come down to the 4.875% to 5% level. It is important to note that during May the "spread" between the 10 Yr US Treasury Note and Fannie Mae and Freddie Mac Mortgage Backed Securities (MBS) also narrowed, so even though 10 Yr Yields in May were not at their lowest levels the narrowing spread between mortgage rates and Treasury yields helped to bring rates to historic lows.

There are 2 ways to look at the recent movement of the 10 Yr Treasury vs mortgage rates. On the one hand if you look at the improvement from 3.9% to 3.6%, the US Treasury yield improvement of .3% is very close to the mortgage rate improvement from 5.375% to 5.0%. However, if you look at the 10 Yr Treasury movement from May 18 (our rates were at 4.375% with .75 points on that day) to today, there has been only a .37% worsening in the 10 yr yield whereas mortgage rates are up .625%.  Essentially the spread has once again widened between the 10 Yr Treasury and the Fannie Mae and Freddie Mac MBS.

Below is data on the daily yield for the 10 year Treasury note. The yield on the 10 yr is watched more closely because it has less volatility and is more heavily traded. The 10 Yr Treasury yield had been running in the high 2's in April and then jumped over 3% at the very end of April and steadily increased to the 3.9% level last week. Today the 10 Yr yield was back down to 3.59% level earlier today as is currently at the 3.65% level.

Daily Yield 10 Treasury Note
Source:  US Treasury Website

4/15/2009  2.82
4/16/2009  2.86
4/17/2009  2.98
4/20/2009  2.88
4/21/2009  2.94
4/22/2009  2.98
4/23/2009  2.96
4/24/2009  3.03
4/27/2009  2.95
4/28/2009  3.05
4/29/2009  3.12
4/30/2009  3.16
5/1/2009  3.21
5/4/2009  3.19
5/5/2009  3.2
5/6/2009  3.18
5/7/2009  3.29
5/8/2009  3.29
5/11/2009  3.17
5/12/2009  3.17
5/13/2009  3.11
5/14/2009  3.1
5/15/2009  3.14
5/18/2009  3.22
5/19/2009  3.25
5/20/2009  3.19
5/21/2009  3.35
5/22/2009  3.45
5/26/2009  3.5
5/27/2009  3.71
5/28/2009  3.67
5/29/2009  3.47
6/1/2009  3.71
6/2/2009  3.65
6/3/2009  3.56
6/4/2009  3.72
6/5/2009  3.84
6/8/2009  3.91
6/9/2009  3.86
6/10/2009  3.98
6/11/2009  3.88
6/12/2009  3.81
6/15/2009  3.76
6/16/2009  3.67