Ok what happened on Wednesday that created the largest increase in rates since October of last year?
Several things, but most related to the treasury auctions taking place. While both Tuesday and Wednesday’s auctions performed fairly well, the additional short term debt put too much selling pressure on the longer term bonds such as the ten year note and mortgage bond securities.
With signs of the economy recovering, improving housing markets, job losses on the decline, the next issue investors face is the printing of all this debt will drag down the value of the dollar and inflation worries will start to surface.
Inflation equals higher bond rates. Wednesdays mortgage companies started a whirlwind of selling mortgage bond securities to protect their pipelines from these fears, driving rates way up.
WILL RATES RECOVER???? The Fed will continue to buy mortgage backed securities in an effort to keep rates as low as possible, and will also continue to buy treasuries to hopefully keep investors interested in both markets.