Why Mortgage Rates are Going to Be Higher Tomorrow…..

If today’s market movements tell you one thing, they should tell you this:
The Bond Market is spooked by how much money the government is borrowing.

Let me elaborate:

• Interest rates were going down.
• Some economic reports came out but they were relatively minor reports that wouldn’t have a major market moving impact.
• The government announces that they are going to auction off $104 Billion in Treasuries next week.
• They auctioned off $65 Billion in Treasuries last week.
• That’s a 60% increase in government borrowings between last week and this week.

What does the bond market do?  The 30 year mortgage bond finishes the day down substantially (remember, price goes down -> Rate goes up) from the day before.

The bond market does not like how much the government is borrowing, so it’s putting upward pressure on rates.

I’ll have more tomorrow - but tomorrow’s Mortgage Market Week in Review will be talking a lot about two main things:  1) Pending financial regulations and 2) Treasury market movements and how they both affect the mortgage market.

Never a dull moment!

Treasury prices retreat on auction announcement, stock rally - Jun. 18, 2009

Treasury prices tumbled Thursday after the government announced $104 billion in debt auctionsSupply: The government, which has recently issued record amounts of debt to fund the economic stimulus effort, announced $104 billion in 2-, 5- and 7-year auctions scheduled for next week.

Last week, the market absorbed $65 billion in debt.