Mortgage rates fell slightly this week, and have remained in a fairly tight range for a month.
The benchmark 30-year fixed-rate mortgage fell 3 basis points to 6.29 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week’s survey had an average total of 0.35 discount and origination points. One year ago, the mortgage index was 6.22 percent; four weeks ago, it was 6.31 percent.
The benchmark 15-year fixed-rate mortgage fell 6 basis points to 5.92 percent. The benchmark 5/1 adjustable-rate mortgage fell 4 basis points to 6.15 percent. One mortgage rate climbed: The 30-year jumbo, for mortgages of more than $417,000, rose 5 basis points, to 7.2 percent.
There has been remarkably little movement in the 30-year fixed over the last month, especially when you compare it to what’s been happening to U.S. Treasuries. In the last month, the 30-year fixed has risen as high as 6.34 percent in Bankrate’s weekly survey and has fallen to a low of 6.29 percent twice, including this week.
Meanwhile, the yield on the 10-year Treasury note has been falling as investors seize the safe securities so they can sleep soundly. On Oct. 31, the 10-year Treasury yielded 4.4 percent. Three weeks later, it yielded 4.01 percent. That’s a decline of 39 basis points. Meanwhile, the 30-year fixed-rate mortgage averaged 6.29 percent on both dates.
A lot of observers think of 10-year Treasuries as a proxy for fixed-rate mortgages: When Treasury yields fall, so do mortgage rates. But that’s just a rule of thumb, and it doesn’t always work. There is no direct connection between Treasury yields and fixed mortgage rates, and the events of the last month demonstrate that.
Mortgage rates aren’t joining Treasuries on their plunge because of the perception of risk. Treasury notes are safe because they are backed by the U.S. government. When you own a Treasury note, you can’t lose your principal, even if the government has to print money to pay you back.
But there is risk to owning securities backed by residential mortgages. As lenders and investment banks write down billions of losses related to subprime and jumbo mortgages, investors have become leery of anything having to do with home loans. Investors are taking refuge in the safety of Treasury notes, but they don’t see any refuge when they look at mortgage-backed securities.
They demand the same yields on mortgage-backed securities that they wanted a month ago, even as Treasury yields have declined. That’s why mortgage rates haven’t followed.