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September 13th, 2010

When will interest rates rise?

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When will interest rates rise?

Interest rates will rise when the economy shows some consistent signs of recovery. Interest rates will rise when “fight to safety” investments become less favorable in the eyes of investors. Interest rates will rise when the yields on those safe investments — such as the 10-year Treasury — aren’t high enough to keep investors interested:

Mortgage rates are of course one of those market interest rates, influenced by the yields on risk-free investments such as Treasury securities. Spreads between Treasuries and mortgages had widened appreciably in recent weeks, owing more to a desire for safety than a disdain for mortgage investments. The yield on the 10-year Treasury has risen by about 15 basis points (0.15%) over the last [few] weeks, but only a little of that increase has passed through to mortgage rates, which hold near record lows.

Despite holding near record lows, mortgage rates did manage to increase a little last week:

HSH’s overall mortgage monitor — our weekly Fixed-Rate Mortgage Indicator (FRMI) — saw its average interest rate lifted by two basis points to close our survey at an average 4.78%, back to where it was [almost three] weeks ago. The FRMI includes rates for conforming, jumbo, and most recently the GSE’s “high-limit” conforming products and so covers much of the mortgage-borrowing public. Following its fixed-rate cousin, the average rate for Hybrid 5/1 ARM also moved two basis points higher, ending the week at 3.75%.

CLICK HERE to continue reading the latest issue of our Market Trends Newsletter, “Better News: Rates Rise (a little).”

HSH.com’s free Market Trends Newsletter, an in-depth analysis of various financial markets from the week prior, is published every Monday. Email subscribers receive it in their inbox 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.

-New Two-Month Forecast for Mortgage Rates coming later this month-

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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.

Our bloggers:

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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