This is pretty interesting because this is the other direction than what the experts thought Operation Twist would have on the market. John Murphy pointed this out earlier on his post, then tonight I saw the St Louis Fed had updated their 30year mortgage average rates.
There are 2 things I find really interesting here but can’t explain.
1) the spread gets larger between the mortgage rates and the 10 year treasury the lower the treasury goes.
2) the 10 year treasury is going up, when most thought it would go down as a result of Operation Twist.
Note: the 30 year mortgage is updated as of 10/13/2011. The 10 year treasury is updated as of 10/11/2011 at 2.18%
Just curious what Edina Realty Mortgage rates are today… Looks like they are heading up.
I had been posting every business day on the 10 year treasury and the 30 year mortgage since the announcement of Operation Twist. The reason why I am posting info on the 10 year treasury is that the 30 year fixed rate mortgage tends to track closely. It is not tied directly together, but the 10 year treasury is used as a guide for banks when they buy and sell mortgages.
Earlier this week the 10 year treasury started moving higher. The 30 year fixed rate followed upwards. Yesterday I got busy and forgot to track these and sure enough – the 30 year fixed rate mortgage rate dropped today.
The 10 year treasury nudged down a bit today as did the 30 year fixed rate mortgage. The national average rate for a 30 year fixed rate mortgage today is 4.01%. This chart below shows the average 30 year fixed rate mortgage compared to the 10 Year Treasury. The 30 year mortgage rate data is updated as of 9/29/2011, the 10 year treasury is updated as of 9/27/2011 at 2.01. (today it closed at 1.96)
click to enlarge
Now let’s look at where Edina Realty Mortgage Rates are today.
Well, it looks like the Feds plan to lower rates may have backfired. It is probably a bit early to make that conclusion, but the trend is beginning to point that direction.
Today the stock market rallied again pushing the Dow up about 146 point to close near 11,190. The 10 Year Treasury went up 0.1120 (+5.88%) to close at 2.016. That is trending higher which will push the mortgage rates higher if it continues.
Today’s Mortgage Rates from Edina Realty jumped about 1/4% on the 30 year fixed conventional today, probably due to yesterdays gain in the 10 Year Treasury.
Image via Wikipedia
Here we go again..
Operation Twist has been launched by the Federal Reserve. The idea is the Federal Reserve will buy long-term T-Bills, $400 billion worth. The theory is it will lower the long-term interest rates. This is also supposed to give banks cash balances. Sounds good, except it has been tried in the past and did not work.
The term “Operation Twist” comes from the early 1960s, when the Fed tried something similar. (It’s named for the Chubby Checker hit.) It may have had a small effect — one recent studyfound that it drove down the interest rate on Treasury bonds by 0.15 percentage points. But the effect on mortgage rates was smaller, and the effect on corporate borrowing costs was tiny.
Read Article from NPR
One problem, okay one of many problems… Mortgage Interest Rates are already at record low levels. This is not the problem with the housing market. The housing market is suffering because of the high unemployment and underemployment. You may argue: it is because of the foreclosures! Well, sure – why are people going into foreclosure?? Maybe because of job loss and under-employment??
I don’t care if mortgage rates are 2% or 4%, if you are unemployed you still won’t buy a house!
Let’s phrase this differently, someone will buy a house at 12% interest rate if they have a job before someone buys a house at 3% interest rate that has no job.
How did the market respond to this news? Take a look at the Dow Jones chart for the day and see if you can identify what time the news was announced:
Welcome to the Lost Decade.
I do hope this works, but I am not optimistic on this strategy at all…