Why Mortgage Rates Continue to Slide Lower

Mortgage rates have moved lower again this week and here’s why:

1.  Geopolitical tensions in the Middle East.  The widespread fighting and violence throughout the Middle East has helped the bond market as investors seek out relatively safer assets.  This phenomenon is know as a “flight to quality” and has the effect of increasing bond prices and lowering bond yields, which leads to lower mortgage rates.

2.  Rising oil prices.  Unrest in oil-producing nations has the added impact of pushing oil prices higher.  When consumers and businesses must spend more for energy, they have less money to spend on other items.  This slows economic growth and can reduce expectations for future inflation, allowing investors to accept lower yields.  Although this one hurts in the pocketbook, it might just help rates long-term.

3.  Strong demand for Treasury auctions.  There was extremely strong demand last week for 10-year and 30-year Treasuries.  This reinforced the view that many investors are seeking to reduce the risk in their portfolios.  Despite budget deficit concerns, US government-guaranteed securities remain one of the primary “safe” assets for global investors.  Demand for the longer-term auctions was well above average from both foreign and domestic investors.  Increased demand drives bond prices higher and yields lower.