The current interest rate forecast definitely changed in the last 24 hours. Many people were predicting that the 10 year treasury rate was going to hold support at the 50 day moving average, but that is obviously not the case. After the auction today, the 10 year was down almost 5%. It seems likely that we are going to see it go down much more over the next few weeks.
Just recently several financial pundits stated that they were astounded that America could borrow money for such a low interest rate. I too wonder why other countries would continue to invest in America when we sink deeper and deeper in debt? Can anyone answer this question?
We currently find the 10 year treasury rate at the bottom of an upward trend channel. Not only is it at the bottom of the trend channel, it is also extremely close to the 50 day moving average would should serve as support also. Unless the government does something to send the 10 year lower, it looks as if the selloff will end in the next few weeks. If supoort does how, look for the 10 year treasury rate to work its way back up to 4% which would mean mortgage rates would move higher towards 6%.
While this is highly likely to happen there is also a scenario in which the government would sink more money into mortgage backed securities and auction off a ton of treasury bonds which would send the 10 year treasury rate sinking through its 50 day moving average. It would not surprise me at all if we saw an announcement in the next few days about this exact situation. Ben Bernanke and Timothy Geithner are working extremely hard to hold average mortgage rates down so this would not be out of the question.
I have known for quite some time that there is a strong relationship between daily mortgage rates and the 10 year treasury rate, but I could never find the actual equation. Thanks to Subprime Blogger and Calculated Risk for the following equation that shows the relationship between the 30 year fixed rate mortgage and the 10 year treasury rate:
y = 2.7283(x)^2 + .5881(x) +.0308
As stated on Subprime Blogger, this equation shows that mortgage rates should be around 5.477% and the last time I checked they were at 5.35%. Pretty close if you ask me as there is never a perfect correlation. Just to start the conversation, do you use the trend of the 10 year treasury rate to determine where mortgage rates are going? Do you even check mortgage rates on a consistent basis or just take the rate that is offered to you when you want to buy or refinance a house?
