When Treasury yields (like the 10-yr, now at 5.20%) rise, yields on bonds backed by mortgages tend to rise more. As every lender can tell you, higher mortgage rates make it less likely homeowners will either refinance or buy a new home, and fewer prepayments mean mortgage investors will hold more mortgages on their books than they expected. To counter that, they readjust by either selling mortgages or selling Treasury securities as a hedge. Both of those things drive Treasury yields and mortgage rates higher and can push more mortgage investors to sell more. Lately economic strength and rising interest rates overseas, in combination with a Federal Reserve that is unlikely to lower rates, have caused selling, driving prices down and rates up. It is certainly not helping mortgage prices: this morning A-paper 30-yr prices are worse by almost another .250.

Last week it was recognized that most of the world’s central banks are fighting inflation and will continue to raise their rates to keep their economies from overheating. From Europe & the US through Asia and all the way to New Zealand we’re seeing the same thing: either higher or constant rates. It almost doesn’t matter if our housing business is slow and that there is a large inventory of unsold homes on the market – other parts of the economy are doing quite well.

The only economic event today is the 10-yr note auction at 10AM PST. As the old saying goes, “If they liked it at 4.90% they must love it at 5.20%”, which means that if buyers wanted to buy that security in the past and earn 4.60 or 4.90%, then they would really want to own it and earn 5.20%.... unless they think that rates are going higher, in which case they’ll wait and see. And with most economic reports recently stronger than expectations, that could be the case.