Mortgage rates holding up despite bond market volatility


Mortgage rates are directly tied to trading levels in the bond market. When bonds have a bad day, rates tend to rise. While this is true for rates associated with US Treasuries (aka “yields,” officially), the mortgage market has held up better.

Part of the outperformance is surely due to the fact that mortgage lenders used more conservative pricing strategies last Friday. But even then, mortgage-specific bonds also outperformed Treasuries. It has to do with Treasuries facing a few more hurdles this week. These barriers are associated with various forms of “supply”, where higher supply means lower prices and lower prices mean higher yields/rates, all other things being equal.

That’s a bit esoteric for our purposes, so suffice it to say that mortgage-backed bonds had a better day than other bonds, and mortgage lenders had some room to improve, whatever whatever the bond market. These factors have allowed the average lender to offer slightly lower rates than last Friday, but the improvement is small enough that the average borrower will only see it in the form of lower upfront costs.

Despite today’s modest victory, the stakes remain exceptionally high going into the end of the week. The Consumer Price Index (CPI) is released on Thursday and no other report has had so much power to cause rate volatility in 2022.


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