The move in the U.S. Treasury market recently has been historic. The benchmark 10-year treasury in the past 13 trading days has dropped over 1% trading this morning at about 0.50%. I would expect the Federal Reserve to throw the kitchen sink at the market on Monday in an attempt to stabilize the markets.

In addition to the Coronavirus fear and its global economic impact, the market is reacting this morning to an oil price war dropping the price of oil 25% overnight.

So what does this mean for mortgage rates?

First a few basics on how mortgage rates are set. They are not set by the 10 year Treasury note or the Federal Reserve. Imagine if that were the case then mortgage rates would only change when the Fed changes rates. They don’t. They often change every day.

Mortgage rates are set in different ways. Conforming fixed rates (up to $510,400) are set by the price of mortgage backed securities (MBS). MBS price generally track the 10 year treasury except in times of high demand and/or financial market stress. The average spread between treasuries and MBS is about 1.5%. That means when the 10 year treasure is at 2%, the 30 year fixed would be 3.5%. In the last few weeks, the spread is the highest it’s been since 2008 during the financial crises. It’s currently about 2.8%. So while we see the 10 year treasury collapsing each day, mortgage rates are barely falling.

When will spreads come down? Generally speaking that will happen when the demand for mortgages wanes (not likely) or large buyers come in and start buying MBS. That big buyer in 2008 was the Federal Reserve. Will they come in and do that again? Maybe. It may take some time but spreads will normalize at some point.

Should you refinance now or wait?

If you can benefit from refinancing now, I would lock and not regret it even if rates fall a little bit more. If you’re fearful of locking because you don’t want to miss the “bottom”, you can usually structure a refinance at “no cost” with a higher interest rate. This way you can lock in the savings now without cost and always refinance again at a later date if rates continue to fall.

There’s also the possibility that rates don’t continue to fall but capitulate higher if/when the Fed throws the kitchen sink at the markets and money rotates out of treasuries and MBS and back into stocks.

Either way I hope to see some stability in the markets this week. Regardless of when that comes, there will be economic impact to the Coronavirus and great rates will be with us for the foreseeable future.

Rates and programs vary widely depending on the scenario. Send me an email at and I’ll send you back some customized options!

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