Home loan rates may continue to drift lower

Last Week in Review: Interest rate disconnect

“Sell in May and go away”… an old Wall Street investment strategy which suggests not owning Stocks during the Summer months.

That investment strategy certainly worked this past May as Stocks declined each week in response to escalating US/China tensions, weakening global economic reports, and increased fears of a US recession.

When Stocks fall in price, typically rates fall as well. And this past week we watched the 10-year Note yield decline to 2.14% — a 20-month low. However, home loan rates, which did decline slightly this past week, didn’t experience the same sharp drop as the 10-year Note yield.

Why the disconnect? Why did the 10-year Note yield drop so much but home loan rates didn’t?

Home loan rates are driven by the trading activity of mortgage-backed securities, and not how the 10-year Note yield moves.

When there is global unrest like we have seen this past week, investors around the globe look to park their money and investments into the “safe-haven” of the US Dollar by purchasing the US 10-year Note. Hence the reason for the larger decline in 10-year Note versus mortgage backed-securities and home loan rates.

Bottom line: Home loan rates may continue to drift lower if the US/China trade turmoil goes unresolved or escalates further.

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