Upward Pressure on Mortgage Rates…..
Bloomberg has the story about how the Treasury yield curve is steepening. So what difference does that make? A couple of quick points:
- It means that short term money is significantly cheaper than longer term money. If you want to borrow for money for 2 years, it’s a lot cheaper than if you borrowed money for 10 years.
- The main reasons are the fear of inflation and the fear of the tsunami of debt that is going to be hitting the markets as the government needs to pay for all of the bailouts and the stimulus funding that they’ve had to do.
- It means that the financial markets are starting to take it seriously that the Fed is actually going to stop buying mortgage backed securities and that’s going to begin putting pressure on mortgage rates.
So, what does it mean for mortgage rates? A couple of things:
- They probably won’t be going down.
- Barring any dramatic movements in the market, the overall trend will probably be a slow increase in rates, not a huge spike upward.
My recommendation – if you need a mortgage within the next 60 days, the odds are stacked against rates being cheaper in a month than they are now, so get it while you can.
Tom Vanderwell
Treasury Yield Curve Steepens to Record Amid Growth Outlook – Bloomberg.com
The Treasury yield curve, a barometer of the health of the U.S. economy, widened to a record as investors bet an accelerating recovery will fuel inflation and hurt demand for unprecedented sales of government debt.The difference between 2- and 10-year Treasury note yields increased to 282 basis points before the government announces Dec. 23 how much it plans to auction in 2-, 5- and 7-year securities next week. It rose from 145 basis points at the beginning of the year, with the Federal Reserve anchoring its target rate at virtually zero and the U.S. extending the average maturity of its debt. A report tomorrow is forecast to show the world’s largest economy expanded in the third quarter.
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