QE3 Brings 30-Year FRMs Back Down to Record Lows


The Federal Reserve’s recent “QE3” announcement appears to be having the desired effect: rates on 30-year conventional loans fell to near-record lows once again, according to new figures compiled by Freddie Mac.

For the week ending Sept. 20, 30-year FRMs fell six basis points to 3.49%, matching the record low, while 15-year FRMs declined eight basis points to 2.77%, setting a new record low.

However, during the week, the yield on the benchmark 10-year Treasury rose to highs near 1.9%, but at deadline, Thursday, the yield was closer to 1.7%, a little below where it was a week ago.

Many factors have influenced the bond market—in addition to the Fed’s new program—such as sparks of relative optimism about Europe’s fiscal woes. In recent weeks a change in attitude temporarily put upward pressure on bond yields, DB Advisors chief economist Josh Feinman said.

The Fed’s new bond purchase program targets purchases of MBS backed by longer-term fixed-rate mortgages, but excludes additional purchases of Treasury bonds. So, even if other benchmark bond yields are higher at points, there will be downward pressure on MBS and long-term mortgage rates “because that’s where the Fed is going to be concentrating its purchases,” he said.

“The Fed had been buying Treasuries under “Operation Twist,” so the market had already priced in the added demand from the Fed,” Freddie Mac said in an statement emailed in response to a question about why there had been some upward pressure on bond yields and rates initially after the Fed’s announcement. “Following the announcement, the Fed began buying MBS, which they haven’t done for quite a while…There is now extra demand coming from the Fed for MBS, which was not there prior to the announcement, and the market priced in that extra demand accordingly.”

Shorter-term mortgage rates either rose or remained stable in the most recent Freddie Mac survey, but a relatively smaller percentage of borrowers are currently opting to take out these types of loans.

The average rate for a five-year Treasury-indexed hybrid mortgage rose four basis points to 2.76% while the average rate for a one-year Treasury-indexed adjustable-rate mortgage remained at 2.61%.

All loans except one-year Treasury ARMs included an average of 0.6 of a point in the most recent week. One-year Treasury ARMs carried an average of 0.4 of a point.

A year ago, average weekly rates were as follows: 4.09% for a 30-year FRM, 3.29% for a 15-year FRM, 3.02% for a five-year Treasury hybrid and 2.82% for a one-year Treasury ARM.

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