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Once again, thanks to Bill at Calculated Risk for the great chart!

A couple of things to notice about the chart:

  • From 2002 until January of 2009, the two basically moved pretty much in tandem.
  • For the last 5 months, that hasn’t happened.   What has changed?  The government has been manipulating (aka buying) mortgage backed securities in an effort to push mortgage rates down.
  • The black line on the chart shows the “spread” (difference) between 30 year rates and 10 year Treasuries.   Notice how the difference between the two has dropped dramatically over the last few months, even though it was quite steady before.

So what does that mean?  A couple of possible scenarios:

  1. As inflation fears (long term, not immediate) go up due to rising energy costs and increased government borrowing, the upward pressure on rates (both Treasury yields and mortgage rates) is going to increase, and Uncle Ben and Timmy are going to have to do more to keep mortgage rates low.
  2. Or we’re going to see rates start creeping upward on mortgages because all of the billions that the Fed is putting into mortgages isn’t working to keep rates down.

Stay tuned, it’s going to be an interesting ride!

Tom Vanderwell

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