Mortgage Rates News

What caused the spike in mortgage interest rates starting May 29th of this year resulting in a 6 month high?

Look at any trend chart, and you'll see a definate spike resulting in a nearly 3/4% increase in a week! Any idea what caused this? According to the morning news, yesterday's meeting by the fed decided to leave rates at an all time low. So... if the fed's rates are at an all time low, why are mortgage rates up? For that matter, what causes them to change?

Public Comments

1. Long term bond rates, mainly. The "fed rates" are short term rates and not the primary driver of mortgage rates.
2. Mortgage rates are based on estimates of long term development of interest rates. Around the 29 May, some numbers started to point to bottoming out of economic downturn and slight inflation in 6 month. I personally think, its baloney, we will have a flat economy for 10 or more years and you will see mortgage rates coming down again soon. They don't know, what they are doing, otherwise we would be in much better shape.
3. Mortgage interest rates are attributed to the change in prices of mortgage backed securities (MBS). There are many factors that determine if prices fall or rise for MBS. If MBS rise, then mortgage interest rates go down and vice versa. What has happened since May 29th is an influx in US treasury bonds. Due to the high spending of the Obama administration, the government must be able to raise money by issuing debt. Around May 29th, traders began to price in the upcoming treasury auction, which was very large. Traders realize that demand for MBS would decrease as there will be a huge supply of treasury bonds. Because of high treasury bond supply, their yields (the return on the bond) goes up. Treasury bonds become more attractive than MBS so the price of MBS goes down making mortgage interest rates go up. To sum it all up, large supply of treasury bonds into the market makes, makes treasury bonds cheaper and thus more attractive than MBS so MBS prices go down. It's simple supply and demand mechanics. Hope that helps. Check out the source for more information on mortgage news and tips.