Mortgage Rates Balloon

ByStander

Treasury yields have been rising for months, but their rise did not cause any dislodging of the private credit markets as yields on corporate bonds and mortgage securities fell.

Part of the reason is the Federal Reserve's promise to purchase up to $1.25 trillion of mortgage securities and $200 billion of agency securities. Thus far the Fed has purchased about $425 billion of mortgage securities and $80 billion of agency securities.

       
Until last week, the Fed's purchases were enough to keep investors in the game so to speak, but the rise in Treasury yields became so great that the dam broke and mortgage rates began to climb. The increase, which will be tabulated by Freddie Mac (FRE - commentary - Trade Now) in its weekly rate survey, could well be about three-eighths to a half percentage point.

We know this by tracking the actively traded mortgage-backed securities. For example, the Fannie Mae (FNM - commentary - Trade Now) 4.0% mortgage-backed securities hovered around 4% for months before its yield climbed to about 4.5% -- all in a week's time.

The Fannie 4.5% coupon has moved from about 4.1% to about 4.6%. Consumer rates track MBS rates very closely and the 4.0% coupon is the one that was mirroring consumer rates most.