About Government Refinance and Home Purchase Programs

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The 10 year treasury note yield shot up again on Friday. The yield was all the way up to 3.86% at close. That is very bad news for mortgage rates, with par rates higher than 5.5% at the end of the week. The question now is if the Fed will intervene again to compress mortgage rates, and if so when. This WSJ article mentions that the time for Fed intervention may be very soon.

Treasury traders now await further news on purchases from the Fed. So far, it hasn’t shown its hand either way, with Fed Chairman Ben Bernanke making no comments on the issue in testimony to Congress on Wednesday, noting only that the rise in yields reflects both economic optimism and concerns about rising deficits. At the April Fed meeting, policy makers had left the door open for a possible expansion of the program.

Bond bears are betting the Fed won’t be able to halt the rise in yields as any purchases are overwhelmed by mounting debt supply and continued worries over the U.S.’s fiscal outlook. Mortgage-related selling, they say, will drive yields up further.

Bond bulls, however, expect the Fed to take action should the 10-year yield head for 4%, as that would push mortgage rates beyond 5.5%, resulting in more housing woes and undercutting the tenuous recovery currently under way. The 10-year yield was at 3.70% Thursday.

Comments (0) Posted by G.R.A. Admin on Saturday, June 6th, 2009


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