Week in Review: Mortgage Rates and Treasury 10s Decline (Colombia and South Korea Fall More)

Confounded Interest ^ | 07/12/2013 | Anthony B. Sanders

[whitedog57]

As we close out the week, the US Treasury 10 year yield fell 5.4 basis points, similar to the decline in the Japanese 10 year sovereign yield of 6.0 basis points. The UK, Germany, Sweden, Australia and New Zealand all saw around 15 basis point drops in their 10 year sovereign yields. Colombia and South Korea saw over 20 basis point yield declines.

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According to the Bankrate 30 year mortgage survey, mortgage rates and the US Treasury 10 both fell after a dramatic rise since the May Day Massacre (international sovereign yield rise).

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In the agency MBS market, Fannie Mae 3.5% MBS rose above par (100) after dipping below par earlier.

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The duration of the Fannie 3.5% has increased since April 12th.

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And Fannie 3.5% convexity is approaching zero (but became more convex over the past week).

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If interest rates rise 100 basis points, we might see prepayment speeds (CPR) drop to 5.5.

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Finally, here is the current interest rate volatility surface.

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While Philadelphia Fed President Charles Plosser thinks that the Fed stimulus should be tapered by the end of the year, but others disagree.

Stay tuned!

[whitedog57]

This is getting crazy!

[Vince Ferrer]

The Fed is trying to keep interest rates down, but they mat not be able to. Almost everything in the economy today is planned based upon low or falling interest rates since their peak in 1982. The reason why house prices have appreciated so much is not due to the quality of houses, but to falling interest rates, which allows people to buy more expensive houses with the same monthly payment.

But interest rates can't stay down forever, and when they rise, everything we "knew" will be wrong. We must prepare for an economy with rising interest rates, because what was a good strategy since 1982 will be the exact wrong strategy for the next 30 years.

[dynachrome]

I’m waiting for zero mortgage rates!