THE BASIS POINT

Big Media Finally Sees Low Correlation of Mortgages & Fed Rates

 

In a rare piece on the relationship between mortgage bonds, treasuries and Fed rates, CNBC finally alludes to the fact that mortgage rates don’t drop on Fed cuts. They even dared to say that mortgages bounced up a following some Fed cuts since September. Correction: Mortgage rates have risen after the last five Fed cuts. This is because mortgage rates are based on mortgage bond yields, not Fed rates, and mortgage bonds trade daily. Before the last five Fed meetings, they have traded up aggressively (bringing rates down), then sold off after they saw something they didn’t like in the Fed statement. Today’s sell off was partly due to the inflation fears implicit in the Fed statement following the rate cut. The other reason is that the stock market rallied strongly with the Dow up 420 points. Investors sell bonds to fund stock purchases in a rally like that.

HELOCs are the single exception. Home Equity Lines of Credit are tied to Prime Rate and Prime is Fed Funds plus 3%, which makes the Prime Rate 5.25% now. HELOC holders will see this reflected on next month’s statement.

 

WANT TO OUTSMART YOUR FRIENDS?

GET OUR NEWSLETTER

Comments [ 0 ]

WHAT DID WE MISS? COMMENT BELOW.

All comments reviewed before publishing.

3 + 12 =

x