Originally posted by: PHL1365
Originally posted by: Vic
Rates up big today after the Fed rate cut, as I predicted more than a month ago back on page 2 of this thread. Yield on the 10 year T-bond is up roughly 200 bps since the Fed announcement.
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Umm, the reason mortgage rates have gone up in the last couple of days is not because the Fed cut short term rates. It is because the Fed did not cut them as much as the market had hoped it would. If there had been a 1/2 percent cut, then I think we would have seen 10-year bond yields fall about 10 basis points. Bond traders for the last 4-6 weeks had already fully factored in at least a 1/4 percent cut in the Fed Funds Rate. Many had even bet money (by buying treasuries at higher prices, forcing bond yields lower) that there would be a 1/2 percent cut. When that 1/2 percent cut did not happen, the market reacted quickly and the prices of treasuries dropped, therefore driving the yields up. Ultimately, it is the bond yields that affect the mortgage market, because borrowers are simply competing with other institutions for capital. That is why mortgage rates are so closely tied to 10 year treasury yields.
BTW, 200 basis points equals 2 percentage points. The 10-year bond yields are only up about 25 basis points (or 0.25 percentage points) since the FOMC announcement.