March Madness for Mortgage Rates
Posted On: April 9th, 2010 by James Posted In: Government Actions • Mortgage Rates
March madness! NCAA tourney time, is always exciting for the dramatic upsets and almost upsets, and 2010 is no different. My bracket is a total disaster (full disclosure: I have Duke vs. Ohio State in the finals), as I write this post, I’m down to 2 of my final 4 teams even in contention!
The funny thing is- this whacky, topsy-turvy drama is also taking place in the US Mortgage Bond market. We had been kind of “lulled to sleep” in the previous 3 weeks after trading in a high and tight range giving us all VERY LOW MORTGAGE RATES during that time. I read a great article describing this long waiting period as a “tightening coil” needing to release its energy up or down… and well… it released alright, as the bottom fell out of the market on Wednesday.
There was definitely some money leaving bonds for the GREENER pastures of the stock market, which really surged on Wednesday- coupled with a DISMAL showing at the 5-year Treasury auction (too much supply, and not enough buyers make these bond values tank obviously). Long and boring story short, we lost about 100 basis points in value in one day. Many lenders re-priced for the worse 4 times on Wednesday which is about as rare an event as a unicorn sighting.
Q: What does a 100 basis point shift mean to mortgage rates?
A: If a 30 year fixed rate of 4.75% was coming with a fee of 1 point on Tuesday, after the close of the market on Wednesday that same rate would cost 2 points.
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