Mortgage rates expected to slide on new Fed move
The central bank, in its post-meeting statement Wednesday, committed to shifting its $1.66-trillion Treasury bond portfolio more toward long-term bonds in an effort to bring down longer-term interest rates in general, including on mortgages.
Policymakers also threw the mortgage market another bone: The Fed said it would use the proceeds from maturing securities in its $885-billion mortgage-backed-bond portfolio to buy more of the same.
Until now, the Fed has been using those proceeds to buy Treasury bonds.
The shift back to mortgage bonds could bring $20 billion or more a month of Fed buying power into that market, said Walter Schmidt, a bond market analyst at FTN Financial in Chicago.
The announcement triggered a new rush of buying in mortgage securities. That should translate into lower rates quoted to home buyers and people hoping to refinance.
“It’s absolutely clear they’re targeting mortgages,” Keith Gumbinger, a principal at mortgage data firm HSH Associates in Pompton Plains, N.J., said of the Fed.
The average 30-year mortgage rate in Freddie Mac’s weekly survey was a record low 4.09% last week, down from 4.60% in early July.
The 4% level is a psychological barrier for the market, but “I think we can breach that” soon, Schmidt said.
The 10-year Treasury note yield, a benchmark for mortgage rates, fell to 1.86% Wednesday, down from 1.94% on Tuesday and the lowest in at least 60 years. The previous low was 1.92% on Sept. 9.
-- Tom Petruno
Photo: A sign advertises a home for sale in Illinois. Credit: Tim Boyle / Bloomberg News