On January 15th I wrote that interest rates were going to make a strong move downward in the next week. That turned out to be pretty much accurate. Rates continued to slide the following week, albeit at a more moderate pace.
This week interest rates at the retail level (the pricing you, as a consumer are quoted) have pretty much leveled off. They have found a nice, temporary equilibrium. But each morning we’re seeing pricing move up a little, and then come down over the course of the day as lenders become more confident about where the market is heading.
So, where is the market heading? Take a look at the chart below, and you’ll clearly see something I have pointed out before. The 10-Year Treasury bill yield (red line) is dropping precipitously. In fact, this week it has hit its lowest point in nine months.
The yield on mortgage-backed securities, meanwhile, which tends to track the ten-year bond relatively closely, followed the ten-year yield down until yesterday (Tuesday the 2nd.) Investors stopped buying mortgage-backed securities for a couple of days, apparently. Inevitably, if the ten year yield holds where it is or drops more, the MBS yield will follow.
At the retail level rates tend to jump up when the ten-year yield rises, and settle down slowly when it falls, because lenders are cautious about offering too low an interest rate and getting caught with their pants down, so to speak.
Barring some unexpected news that the economy is about to surge, the ten-year bond yield is almost certain to continue dropping or – more likely – settle in for the next few weeks into a narrow trading range. But that range will be lower than it has been for the last nine months.
As it settles the yield on mortgage-backed securities is bound to follow, as are rates at the retail level after a lag of a few days.
Stay tuned. It seems likely we will have a window of very low interest rates to play in.