You are quite right that predicting the behavior of the treasury yield is hard to do, pretty much impossible. What I was trying to get at, and which I apparently miserably at doing, was two fold.
1 – I was trying to point out that interest rates on mortgages are not tied to the overnight rate set by the fed. That the mortgage rates set by lenders are based on the bond yield behavior, not the fed, not the fed, not the fed…
2 – Once a potential buyer can accept premise 1, they can very much look at the treasury yield and get an idea of what is going on with mortgage rates. They can look at the behavior of the treasury, they can determine if the overall behavior of treasury is trending up or down, and they can get some sort of feel for which way things are going. More astute buyers can even predict upper and lower bounds on where the treasury yield may be 1 or 2 months out.
Again, if anybody here feels that lenders base mortgage rates on the fed rate, I cannot state how wrong that assumption is. HELOCs maybe, commercial loans yeah… but the main financing vehicles that are used for mortgages we commonly discuss here… those are based on the 10 year.
My point is not to say the 10 year is predictable or that I can predict it… Not in any manner. If I were to make any attempt predict it, well… it looks like over the past few years it (the 10 year yield) is showing higher highs and higher lows. So I would guess (note the words guess) that it will perhaps run up to 5.5 maybe even 5.75 and then it will cycle down.
One other note, as was previously mentioned, and as you very well know, an inversion in the 10 year and overnight rate has predated a recession I believe 6 out of 7 times or something like that. The most recent inversion I believe is unwinding because the recession didn’t occur when many thought it would. Similarly inflation and stronger economic nunbers have “chased” the bond yield up. Anyways I am WAY out of my element in the past 2 paragraphs.
To be simple, noting where the 10 year is at, and where it may go in the near future may save potential buyers alot of money.
