The yield on the benchmark 10-year Treasury jumped above 2.7% on Wednesday, compared to a reading of 2.5% earlier in the week, a sign that mortgage rates may be headed upward.
The move may reflect, among other things, recent relative improvements in economic data, Michael Gapen, director, U.S. economic research for Barclays Capital, told National Mortgage News.
While the Fed recently unveiled a quantitative easing strategy designed to lower longer-term rates (with the aim of bolstering the flagging U.S. economy), it also noted that it may adjust Treasury bond purchases in line with how the economy reacts.
In other words, an increase in yields driven by economic improvement is not necessarily a concern for the Fed. Previous Fed purchase program also were followed by a run-up in yields, Gapen said.
Higher rates could be a concern for the mortgage market where origination volumes have been largely rate-driven.
Should this housing-related issue become a concern for the broader economy, Gapen said the Fed could tiptoe back into buying MBS, mindful of the need to avoid distorting financial markets.
