Monday, April 5, 2010

10-Year Treasury Yield

The 10-year treasury yield broke the 4% benchmark this morning. We haven't seen yields this high since Q4 2008 when the economy was in really bad shape. Although rates have increased over the last two weeks, the good news is that mortgage spreads are much tighter than they were in '08 and rates are still relatively low.

With the Fed ending it's MBS purchases last week, how long will spreads remain so tight? We're not sure, but we don't think the government will sit back and allow mortgage rates to rise too quickly. Combined with the expiration of the home buyer tax credit, this will create concerns in Washington.

The housing market is the core of the economic recovery. As we enter the prime real estate months (Spring-Summer), will the Fed and policy makers gamble and possibly allow yields and spreads to jump while the tax credit expires? We think not but one thing is clear - government intervention is finished for now.

How closely are you monitoring and managing your pipeline? High volatility leads to high levels of risk and exposure, especially when the market breaks through a benchmark.