October 19th, 2009 (Modified on October 29th, 2009)

Getting Back to Normal?



Some economists have said that the “new normal” won’t be like anything that we were used to before the financial crisis. However, that may not be the case for all economic indicators. Things got a little more “normal” last week when the Dow Jones Industrial Average hit the 10,000 mark and when Treasury yields began to once again influence the direction of conforming rates.

According to the latest issue of HSH Market Trends Newsletter, “Dow Ten-thou, and Rates Nudge Higher“:

It would seem that the relentless pull of a rising stock market and a slightly increasing risk appetite among investors has finally dragged at least some money out of its safe hiding place in 100% guaranteed Treasury obligations. The Dow Jones Industrial Average topped 10,000 this week, oil prices rose considerably, and gold also powered ahead.

In the “normal” days of old, yields on Treasuries had a very strong influence on fixed-rate mortgage rates, and it would appear that this relationship is being re-established.

HSH’s measure of the overall average for 30-year fixed-rate mortgages — including conforming, jumbo and agency jumbo pricing — rose by eight basis points (.08%), pushing our Fixed-Rate Mortgage Indicator FRMI up to 5.42%, while the FRMI’s 5/1 Hybrid ARM counterpart saw its average increase by five basis points, landing at 4.72% for the week.

In the earlier part of the decade, the 10-year Treasury became a good reliable barometer for the direction of 30-year fixed mortgage rates. The financial market crisis, however, changed that to a real degree, as Treasury yields and mortgage rates often went in different directions as investors showed a desire for one (Treasuries) at the expense of the other (mortgages). Spreads between the two instruments became extraordinarily wide, reflecting that preference, and a “normal” gap of perhaps 150 basis points for standard conforming loans — about one and a half percentage points — ballooned to over 300 basis points as recently as the beginning of this year.

Click here to continue reading “Dow Ten-thou, and Rates Nudge Higher.” HSH’s free weekly Market Trends Newsletter, an in-depth analysis of various financial markets of the week prior, is published every Monday. Email subscribers receive it in your inbox by Friday night, so sign up today! Also, be sure to check in with our Market Trends blog for all news relating to any weekly shift in mortgage rates.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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