Treasury bonds hit record lows – could mortgage rates follow?

by Ryan Smith06 Jul 2016
Treasuries plunged to record lows Tuesday as investors scrambled to the safety of government debt amid fears over the UK’s decision to leave the European Union. And that could push mortgage rates, which have already reached three-year lows, even lower.

A buying frenzy caused Treasury prices to soar Tuesday. Because of their inverse relationship, Treasury bond yields drop when their process rise – so the 10-year Treasury yield plummeted 7.9 basis points on Tuesday to reach an all-time low of 1.367%, according to a MarketWatch report.

Mortgage rates are closely tied to Treasury yields, so the bond shakeup could lead to rates dropping even further. Mortgage and real estate experts have already said they expected to see rate drops resulting from the UK’s vote to leave the EU.

“We expect mortgage rates to reach historic lows in the wake of the Brexit vote, as investors flock to the relatively safer investments in U.S. mortgage-backed securities,” Erin Lantz, Zillow’s vice president of mortgages, said in the wake of the vote.

But the impact from the plunge in Treasury yields probably won’t be known for a week or so, according to a HousingWire report. The most recent data from the Mortgage Bankers Association showed refinance applications at an 18-month high, but since mortgage apps run about a week behind, that data didn’t account for Tuesday’s Treasury-buying frenzy.
 

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