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“The question is: ‘Did the Fed cut too far?’ †Bankrate.com’s Greg McBride said. The Fed last week sliced a sharp 0.5 percentage points off of the key federal-funds rate, which banks charge each other for overnight loans. But while cutting the federal-funds rate directly impacts short-term borrowing like credit-card debt, it doesn’t automatically affect long-term loans like mortgages. Instead, banks generally base mortgage rates on 10-year U.S. Treasury bond yields, which have risen 0.23 percentage points in recent days. McBride said Treasury yields have gone up because some bond investors fear the Fed cut short-term rates too much, risking inflation.
Inflation is bad news for mortgage investors because they agree to lend money at fixed rates for up to 30 years. So, unexpected inflation can ruin these investors’ returns. “Inflation is the worst enemy of investors that buy long-term (debts),†McBride said. Although the analyst thinks investors will calm down and bid mortgage rates back down in coming months, others disagree. “Lock in your rate now,†Michael Darda of trading-and-research firm MKM Partners LP told Bloomberg News. “Long-term bond yields will put a floor under how much further mortgage payments will go down.†No comments have been added to this post yet. Leave a comment |
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