Rates Near Three-Year Lows, As Connection With Yields Remains Frayed

Mortgage rates edged down only slightly this week despite more sharp, volatile movements in the bond market.

Rates remain near three-year lows, but in recent weeks have not dropped nearly as low as we would expect given the fact that bond yields have fallen markedly over the same timeframe. The connection between Treasury yields and mortgage rates – two metrics that typically move in unison – has frayed in recent weeks, in part due to increased refinancing activity weakening investor demand for mortgages, resulting in higher-than-expected rates. Treasury yields continued to fluctuate over the past week on developments surrounding U.S.-China trade tensions, ending the period near all-time lows.

It’s likely that these muted movements in the mortgage market will persist into the long Labor Day weekend, but Thursday’s second reading of Q2 GDP and Friday’s inflation and consumer spending reports all have the potential to jostle rates free of this recent mundanity.

Consumers have powered the economy of late as manufacturing and investment have weakened. A strong spending report would act as compelling evidence that consumers remain confident amid growing economic uncertainty and would likely nudge rates higher.

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