Why did mortgage rates drop a little this week, and will it stick? That's the question I'm answering today.

Last week the Treasury made a move that turned out to be a sugar high, and it wore off quickly. Rates improved slightly, but it was only for a day.

Why the first improvement didn't last

It wore off for two reasons. Oil prices kept climbing. And the method of the buyback was easy to see through. The Treasury just issued more debt to buy back its long-term debt.

(Remember, as more money flows into long term treasury bonds, it lowers the rate. When long term treasury bonds lower, mortgage rates will typically follow.)

What changed this morning

This morning, though, the Treasury announced it could buy those long-term bonds back using a different source: the Treasury General Account. Mortgage rates improved today, but I think we should give more credit to oil dropping a little.

There's about 200 billion dollars more in that account than there was last year, and Secretary Bessent mentioned the possibility of about 4 billion a month in purchases of its own long-term bonds.

Why this could matter more than the last attempt

This could improve mortgage rates for more than a day, because of one difference: the source of where the funds are coming from.

The Treasury doesn't have to issue new debt to buy back this long-term debt. The money is already accounted for. That's why it could make a bigger impact.

I still see it as more can-kicking down the road.

The TGA is a combination of income from federal taxes and its debt issuance, so we're using more debt to pay off different debt.

What this doesn't do is fix the deficit spending.

That's why I don't see it as a permanent solution, but it could temporarily improve mortgage rates.

What to watch this afternoon

Washington is expected to announce new financial sanctions on Iran around 2 o'clock Eastern. Oil and bonds have been trading off that story all month, so the reaction to this will matter more than the actual announcement.

Today's numbers

  • 10 Year Treasury: 4.694 (lower is better)
  • UMBS 5.5: 99.23 (higher is better)
  • Average 30 year conventional mortgage rate: 6.78%

What's next this week

Tomorrow we have fresh home price data, and we have new home sales. Wednesday we get PCE and GDP. And Friday it's the Fed's Jackson Hole symposium.

If you're trying to figure out how these rate swings actually affect what you can afford, run your numbers through my affordability calculator. And if you want to talk through your specific situation before rates move again, grab a spot for a free planning session with me.

Sam

Originally shared by u/SamTMortgageBroker in r/NewbHomebuyer — view the original thread.