Why Mortgage Rates Are Rising
The spread between the 2 year and 10 year treasury yields continues to widen. Federal Reserve policies largely control the direction of shorter-dated notes, while the overall bond market and investors largely determine the direction of longer-dated bonds.
The difference between short and long-term bonds is called the ‘yield spread’ and it is a measure of varied expectations. This yield spread chart clearly shows that what the Fed policies are doing is largely different than the overall expectations from the bond market. This is one reason why interest rates on certain types of home loans such as refinance mortgages, purchase and equity loans have risen lately even as the Fed keeps its target interest rate at 0-0.25%. The bond market is seeing the future differently than the Federal Reserve.
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