Treasury yield decline places downward stress on mortgage charges |
For mortgage borrowers, the recent decline in government bond yields is likely to lead to a decline in mortgage rates.
JEFF OSTROWSKI Bankrate.comr
The economy opens again. Americans are traveling again, eating out, going to the movies and ball games. But if you expected the robust rebound to translate into a rapid surge in mortgage rates, think again.
The 10-year government bond rate – a closely watched metric and key benchmark for mortgage rates – fell below 1.46% on Thursday. Before the recent pullback, government bond yields rose as high as 1.69% in May.
The decline in government bond yields came after a new report showed the US trade deficit hit record highs. For mortgage borrowers, the decline in government bond yields is likely to lead to a decline in mortgage rates. As a rule of thumb, the 10-year treasury is 150 to 200 basis points above the 30-year mortgage rate.
“The response in mortgage rates to changes in underlying US Treasury bond yields is usually fairly immediate,” said Greg McBride, chief financial analyst at Bankrate. “A drop in treasury yields one day means that lenders will change prices frequently that day and borrowers will get better interest rate offers within hours. With government bond yields retreating at the beginning of the week, this is a good time for borrowers to set their interest rates. “
The reversal in government bond yields is just the latest curve ball in the economy. Mortgage experts expect mortgage rates to continue rising this year – and any decline in government bond yields could prove volatile, said Joel Naroff, head of Naroff Economics.