Interest rates have been pretty much rock-steady now for so long it’s almost hard to find something interesting to write about. When we last looked at them in late March wholesale rates (red and blue lines on the chart below) were on a strong downward trend, with retail rates (green line) just starting to follow. Follow they did, as you can see by the drop in rates in late March (green line.).
Starting in early March the 10-Year U.S. Treasury bill yield started to rise and slowly, unsteadily climbed until the last few days of April. The yield on mortgage-backed securities, represented by the blue line lagged a bit before rising briefly. They are now following the Treasury Bills down again.
Are Rates High From an Historical Perspective?
But pull back and look at interest rates over the last 16 months covered by the chart, and you can see that overall, investors are still accepting very low yields in the context of recent history.
So here is the only really interesting thing to talk about here.
The chart above tracks the spread between the yield investors in mortgage-backed securities want to earn and what lenders are offering borrowers at the retail level. In other words, it represents the gross margin that lenders add on and charge you.
As I’ve written before and as you can see, the margin has risen fairly dramatically since the beginning of this year. The trend line does not appear to be making any sort of strong move toward last year’s “normal.” But it does not appear to be rising any more either.
Rates rose slightly most of the last half of April, and improved slightly the last two days. In the coming week there is very little scheduled on Monday and Tuesday for economic reports that are likely to have an impact on the bond market. Wednesday brings us numerous reports that could be important, and so offers the first real opportunity for interest rates to make a strong move.
Unusual activity elsewhere in the world could change that, of course.
So, I would expect interest rates at the wholesale level (red and blue lines in the first chart) to move slightly lower or flatten out this week. The gross margin lenders add on to the rate will not likely change soon as there appears to be little appetite on the part of lenders to squeeze margins today. Consequently, I would expect rates to remain at their current (relatively) low level at least through Wednesday.
This article represents the opinion of Casey Fleming, and not necessarily that of C2 Financial. This analysis was prepared with the best information available at the time it was written. Neither Casey Fleming, nor C2 Financial, have any magical insider information about bond markets, real estate markets or mortgage markets that would make economic projections any more reliable than any other source. No warranty is made that the outcome will reflect the projections in this article, and neither Casey Fleming nor C2 Financial are responsible for decisions that you make regarding your own choices about your real estate or mortgage or those of your clients.
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