Mortgage Rates Rise After FOMC Meeting

Yesterday, prices of mortgage backed securities (MBS) moved lower increasing consumer borrowing costs by .125 to .375 in discount. Most lenders sent out re-prices for the worse after bond markets were disappointed by the FOMC statement. First, the wording of the statement indicated a bottoming of the current economic downturn. This created optimism in the stock market and allowed investors to move from fixed income investments to riskier equity positions. Second, the lack of verbiage indicating the Fed would boost their Treasury buying program added steam to the recent supply stimulated selling (huge amount of treasuries that will come to market to fund the ever growing deficit) of treasury securities. Following the release of the FOMC statement Treasury yields climbed considerably. Currently, the benchmark 10 year treasury is trading at a yield of 3.13 when just a week or so ago it was in 2.85 range. Since MBS and Treasuries are both fixed income investments, they tend to trade in similar direction. So, when treasury yields rise so do mortgage rates; however, the extent of the move has been much larger with Treasuries than MBS because of Federal Reserve support of mortgage rates