Debt Auctions Putting Upward Pressure on Mortgage Rates

It was a slow day in the fixed income market's yesterday. Mortgage rates were mostly unchanged as prices of mortgage backed securities bounced around a tight range before closing near the same level in which they opened the day.  Treasuries also moved sideways in slow and sluggish trading. A general lack of market moving data and information was to blame for the quiet session.

The only potential market mover today will occur at 1pm when the U.S. Treasury Department auctions $39billion 3 year notes.   Auction demand, as measured by the bid to cover ratio, is the market's preferred gauge of the auction's success. Strong demand helps keep the prices of Treasuries high and yields low.   Because Treasury debt securities set the benchmark for the rate of return on riskier fixed income investments, Treasury auctions have the potential to affect MBS prices and mortgage rates.   Despite record borrowing by our government, demand for our nation’s debt has remained very strong. 

The auction today does not carry the weight of tomorrow’s 10 year note auction as it relates to MBS.  This is due to the average life of a mortgage being much closer to 10 years than it is to 3 years, but today’s auction could set a tone for tomorrows.  Matt and AQ will cover the auction once it is completed shortly after 1pm eastern on the MBS Commentary blog. 

For more on the day ahead, read the MND STORY.

Early reports from fellow mortgage professionals indicate the par 30 year conventional rate mortgage remains in the 4.625% to 4.875% range for well-qualified consumers.  To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.   If you are seeking a 15 year fixed rate mortgage, the par conventional rate is in the 4.125% to 4.375% range.   To secure that rate you would need a FICO score of only 620 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. 

Ahead of the 3 year note auction today, the 10 year note auction tomorrow, and the 30 year bond auction on Thursday, MBS prices are expected to be under some pressure to move lower.  Over the past few weeks we have been operating in a falling mortgage rate environment. For the past week, mortgage rates have held near record lows. That said, I will continue to state that there is more risk in floating than reward.

Although we have been discussing a possible paradigm shift in the marketplace, its hard to ignore the mortgage rates currently being offerred to borrowers, regardless of the chances that rates fall further.  At the end of the day, there is much more room for rates to rise than to move lower. Remember: mortgage rates will always move higher faster than they move lower.   Locking removes all risks of higher rates...not to mention it might help you sleep better tonight.