Mortgage Rates Have Really Dropped
Since the day before the Fed’s announcement of a 75 bp rate increase mortgage bonds and Treasuries have been in a RALLY that has surprised people including me. On June 14th the 4.50% mortgage bond closed at $98.25 and it closed July 1st at $100.76, an increase of a remarkable 250 bps. And the 10-Year Treasury Bill yield has dropped from 3.38% to 2.89%. Even the 1-Year Treasury Bill which closed June 14th at 3.14% is down to 2.75%.
Why has this happened? First, the 1-Year T-Bill yield of 2.75% tells me that bond investors think the Fed will only raise short-term rates by another 0.75% to 1% as the Fed Fund Rate, an overnight borrowing rate, is currently in the range of 1.50% to 1.75%. Second, the “R” word has been uttered much more in the last 2 weeks by business executives and others. Even the Atlanta Fed is now predicting second quarter GDP growth being negative. And what happens to mortgage rates during a recession? They always drop. Conventional conforming rates are back to the mid 5%’s and FHA and VA rates are near 5% and jumbo rates are back in the mid 4%’s.