【Zillow】Rates Slide as Bond Market Falls Sharply

Mortgage rates fell this week, but not as far as expected, amid growing geopolitical uncertainty that has prompted a steep decline in the bond market.

Yields plummeted to 20-month lows in recent days as investors – who continue to weigh risks surrounding the U.S.-China trade negotiations, Brexit and slowing European economic growth – accelerated their flight to the safe haven of Treasurys. The inversion of the yield curve exacerbated this behavior.

Typically, this would result in sharp declines to mortgage rates, but thus far the response has been fairly muted, and rates did not fall by as much as bond yield declines would predict. There are a variety of explanations for this deviation, including conversations having to do with the potential re-privatization of Fannie Mae and Freddie Mac. To be sure, yields and rates are still strongly correlated, but given this recent trend, any sharp rebounds in Treasurys likely will result in only subtle rate increases.

Looking ahead, all eyes will be on Thursday’s revised Q1 GDP reading and Friday’s inflation data release, two key indicators Fed officials watch to evaluate the health of the U.S. economy.

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