Interest Rates Update

Mortgage-backed securities and Treasuries plummeted today due to concerns over hedging against higher interest rates, inflation, and the US’s AAA rating.  Hopefully this trend is reversed.  “As Treasury yields continue to climb — Treasurys have been on a track to higher yields since March — expectations continue to grow that the Fed may have to up its purchasing of government securities to keep consumer borrowing and namely mortgage rates low. It has committed up to $1.75 trillion to the program.

Higher Treasury rates, though, threaten to throw a wrench in the Fed’s work, if they translate into higher mortgage rates. If the rate rise “translates into the prime mortgage rate creeping up to close to 5% or over 5%, we could see more Fed mortgage buying,” said UBS mortgage strategist Jeana Curro. The prime rate was at 4.82% as of last week, up from the 4.78% low hit twice in April. A rate in the mid-4.90s “could cause concern,” Curro said, with the Fed maybe then stepping up its mortgage purchases.”

http://online.wsj.com/article/SB124343157431958511.html