Monday, March 20, 2006

Mortgage Rates: overseas investors

Monday 03/20/2006: Most mortgage interest rates are pegged to the U.S. government Treasury bond yields. Bond price and yield have an inverse correlation - when price goes up, yield goes down. Some of us know that foreigners' purchase of the Treasuries has kept the bond prices high and interest rates low. However, this may come to an end soon. As shown on the chart above (figures are in millions of dollars), prior to April 2004, the net foreign purchases of the Treasuries only dipped below 0 sporadically. For the past 2 years, the net foreign purchases have mostly been staying in the negative territory, which means there have been more selling than buying. This is the reason behind the rising long-term mortgage interest rates. Courtesy of Realty World Cal.


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