Investors pushing for fatter yields on mortgage-backed securities may undercut easing mortgage rates
Mortgage rates are expected to come down later this year, but any benefit to homebuyers could be muted by developments in the market for financial instruments tied to mortgages
LOS ANGELES (AP) — Mortgage rates are expected to come down later this year, but any benefit to homebuyers could be muted by developments in the market for financial instruments tied to mortgages.
Over the last couple of years, uncertainty about inflation and the trajectory of mortgage rates led investors to demand a fatter yield for owning mortgage-backed securities relative to what they would get buying the government’s 10-year Treasury bonds.
Mortgage-backed securities, or MBS, are investments made up of home loans and, like bonds, pay interest to investors. The difference in the interest, or yield, offered by each of these types of investments can be gauged by looking at the spread between mortgage rates and U.S. government bond yields.
Historically, that spread averaged around 1.7% a month. It surged last year, swelling in June to nearly 3% -- the widest gap since August 1986, according to Federal Reserve data.
