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Low Rates Plus Buying Demand Equals Good News

July 13, 2020

Last Week in Review: Low Rates Plus Buying Demand Equals Good News

This past week, Freddie Mac reported mortgage rates hit an all-time low of 3.03%. What is most impressive with the improvement in mortgage-backed security prices and rates, is it happened as Stocks enjoyed nice gains, with the NASDAQ hitting all-time record highs.

Typically, when Stocks improve in price, it is at the expense of Bonds and rates, but not this week.

On Wednesday, the markets received a signal suggesting rates will remain low for quite some time and they might even go lower.

Every couple of weeks the Treasury Department sells or auctions off Treasury Notes and Bonds to help fund our government. Now, with the unprecedented amount of stimulus, the Treasury will be selling even more Bonds for a long time to cover the tab.

The good news? The buying appetite for the 10-year Note auction was the best ever — with the yield hitting a record low .65% in the auction.

This means investors continue to seek the “safe haven” of the 10-year Note from other markets, and even though investors are only receiving a paltry .65% yield, it far outweighs other yield options around the globe where negative rates are common.

This past weekend, the 10-year Note yield had dropped further and beneath .60% for the first time in months and only did so a couple of times. This is important to follow as a sustained move beneath .60% would help push mortgage-backed securities higher and pull home loan rates lower.

Bottom line: Interest rates are going to remain relatively low for a long time, which will help many families restructure their debt while providing a tailwind for housing for the foreseeable future.

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