Mortgage rates fell for the first time in four weeks, dropping 10 basis points as investors' concerns over a government crisis in Italy drove bond yields lower, according to Freddie Mac.

30-Year FRM 15-Year FRM 5/1 -Year ARM
Average Rates 4.56% 4.06% 3.80%
Fees & Points 0.4 0.4 0.3
Margin N/A N/A 2.77

The 30-year fixed-rate mortgage averaged 4.56% for the week ending May 31, up from last week when it averaged 4.66%. A year ago at this time, the 30-year fixed-rate mortgage was 61 basis points lower, when it averaged 3.94%.

"The decline was driven by recent trade and geopolitical issues, which led to a sudden decrease in long-term Treasury yields," Freddie Mac Chief Economist Sam Khater said in a press release. Meanwhile, confident American consumers shrugged off the market volatility, as purchase mortgage applications continued to trend higher from a year ago."

The yield on the 10-year Treasury note peaked at 3.11% on May 17, sunk back below the 3% level on May 23 and has been trending down ever since. It bottomed at 2.78% on May 29 as the markets reacted to Italy's problems in forming a new government when the country's president refused to approve a Euro-skeptic as the finance minister. Investors then began purchasing bonds looking for safer places to put their money and the demand drove yields lower.

On May 31, the 10-year's yield opened trading at 2.85%. Bond investors are not only worried about the political situation in Italy but in Spain as well, along with continued tension over U.S. trade with China.

Freddie Mac remained bullish on the purchase market, even if rates continued to rise.

"Extremely low inventory conditions in most markets are preventing sales from breaking out, while also keeping price growth elevated," said Khater. "Even if rates climb closer to 5%, sales have room to grow more, but only if current supply levels start increasing more meaningfully."

The 15-year fixed-rate mortgage this week averaged 4.06%, down from last week when it averaged 4.15%. A year ago at this time, the 15-year fixed-rate mortgage averaged 3.19%.

The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.80% this week with an average 0.4 point, down from last week when it averaged 3.87%. A year ago at this time, the five-year adjustable-rate mortgage averaged 3.11%.

For the coming week, those same geopolitical concerns will have an impact on bond yields and thus mortgage rates, Zillow Senior Economist Aaron Terrazas said in a press release for its own rate tracker.

"Geopolitics are likely to continue driving major movements in financial markets over the next week, but markets will also keep an eye on incoming U.S. inflation and jobs data, as well as several speeches by key Federal Open Market Committee voters," Terrazas said.

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