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Mortgage Rates Jump, Driven by Market Volatility & Stress


Mortgage rates jumped sharply this week, as volatile swings in stock markets, government spending to help cushion the growing fallout from the coronavirus crisis and underlying stresses in the broader markets weakened demand for government debt. The market for Treasurys and other bonds, including mortgage-backed securities, tossed and turned this week, experiencing massive losses and gains that would normally be deemed extraordinary if they weren't mirroring behavior from the day before.

Underlying liquidity issues in financial markets, and subsequent Federal Reserve actions taken to address those issues, drove most yield and rate movements throughout the week. But the largest change on the week was the federal government's announcement of a $1 trillion spending plan to combat the damage to the economy wrought by the coronavirus. The plan will require a large amount of government debt to be issued, in the form of U.S. Treasuries. Knowing that more bonds will be in the market in the near future, current Treasuries suddenly warranted lower prices in recent days, which coincide with higher yields. Rates rose sharply on Wednesday and now, remarkably, sit a full percentage point above where they were just over two weeks ago.

With so much still uncertain, and market movements remaining unpredictable, it's a losing game to try and predict where rates are heading next. But it's safe to say that more dramatic movements are likely on the horizon.

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