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Yields on Treasuries Tumbling

Average 30-year 6.04%

November 20, 2008


Yields on long- and short-term Treasuries are tumbling -- pushing rates lower on fixed- and adjustable-rate mortgages. One forecast has the 30-year staying put through next year.

The average 30-year fixed-rate mortgage fell 10 basis points from last week to 6.04%, according to Freddie Mac's Primary Mortgage Market Survey for the week ended today. The 30-year was 6.20% 12 months earlier.

In its November Economic and Housing Market Outlook, Freddie Mac predicted the 30-year would average 6.2% this quarter and remain there throughout next year.

The 15-year fixed-rate mortgage averaged 5.73%, 8 BPS lower than last week.

The yield on the 10-year Treasury, which is often used as a benchmark for fixed mortgage rates, tumbled to 3.210% near midday from 3.758% seven days earlier, according to data reported by CNNMoney early today. The latest yield reflect a flight to quality as fleeing investors have pushed the Dow Jones Industrial Average below 8,000.

The plunge in the Treasury yield has Bankrate.com panelists pointing to lower rates, with 57% predicting that rates will fall at least 3 BPS during the next 35 to 45 days. The survey, which covered the week from Nov. 13 to Nov. 19, indicated the remaining panelists were fairly evenly split over whether rates will rise or remain unchanged.

The five-year Treasury-indexed hybrid ARM averaged 5.87% in Freddie's latest survey, 0.11% lower than last week. The one-year Treasury-indexed ARM averaged 5.29%, 4 BPS below the prior week.

"Long- and short-term mortgage rates fell for the third consecutive week amid continuing signs of a slowing economy," Freddie Chief Economist Frank Nothaft explained in the survey. "Retail sales fell for the fourth straight month in October and consumer sentiment remained near a 28-year low in November."

The yield on the one-year Treasury, which is used as an index for the one-year ARM, was 0.97% yesterday, down from 1.03% seven days prior.

The six-month London Interbank Offered Rate -- a popular index for subprime ARMs -- rose to 2.63% yesterday from 2.55% last week. The increase in the LIBOR reflected the rising cost of bank loans to each other.

ARM yields were also mixed last week, but ARM activity edged higher -- accounting for 3% of applications tracked by the Mortgage Bankers Association for the week ending Nov. 14. The prior week, ARM share was 2%.

MBA said overall applications were down 6% on a seasonally-adjusted basis from a week earlier -- bringing the Market Composite Index to 398.6. The decline came despite a decrease last week in fixed-rates and the five-year hybrid ARM.

Overall activity was driven by a 13% drop in purchase applications, MBA said. Even government applications, which consists mainly of FHA-insured activity, were 7% percent lower.

But 1003s for refinances fell just 3%, MBA reported. The share of total applications that were for refinances rose to 50% from 45%.

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com.

e-mail: [email protected]

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