Just When You Thought We Were Done Talking About All-Time Lows

Mortgage rates plunged well into new all-time lows this week, which is a striking turn of events given the vastly different outlook at the end of last week.

Specifically, a series of strong economic reports led to significant losses in the bond market (bond losses = higher rates) and gains in stocks.

The unspoken warning was that rates had been too complacent in the face of a potential economic rebound.  

Now this week, markets are singing a different tune. Recently strong economic data was great to see, but with coronavirus numbers spiking in several states, the sustainability of the economic improvement is in question.

Sentiment shifted on both sides of the market with stocks giving signals that their recent gains may have been a bit too euphoric. The result was the biggest sell-off since March. 

Conversely, the bond market had its best week since March, and again, when the bond market is doing well, rates are falling.  The 10yr Treasury yield moved all the way back into the range it had so abruptly departed last week.

The news was even better for mortgage rates, which hit new all-time lows by Thursday afternoon.  Considering the chart above shows gradual upward movement in 10yr Treasury yields over the past few months, how is it that mortgage rates continue hitting record lows?

Simply put, mortgages never improved as quickly as Treasuries on the way down. 

So even if Treasury yields remain flat to slightly higher, mortgage rates have some room left to close some of this gap.The mortgage market received another vote of confidence this week from the Fed.  Although the Fed was already buying huge amounts of Treasuries and mortgage-backed bonds, they were doing so on an "emergency" basis.  That meant the amount had been changing every week (and generally declining).  The fewer bonds purchased by the Fed, the worse it could be for rates.