The brexit effect on u.s. Mortgage rates
U.S. Treasury Department, the daily yield curve on a 10-year bond was 23. June 2016 1. 74%. After the Brexit vote, this rate fell on 24. June 2016 to 1. 57%. Three days later, On 27. June 2016, the rate fell further to 1. 46%. (See also: Brexit continues to affect markets.)
Downward trend in mortgage rates
Mortgage rates in the United States are influenced by U.S. Treasury rates, particularly the 10-year Treasury rate. and investors would receive if they put money into a 10-year U.S. Treasury note.
What this means? This tells us that investors in the U.S. and around the globe are seeking safer investments, such as U.S. Treasuries, because they fear that the consequences of the Brexit vote will lead to economic instability and negative financial consequences. When Treasury bills become popular, their interest rates fall, and because mortgage rates are affected by Treasury rates, one can make a reasonable assumption that mortgage rates will fall as well.
Impact of the subprime meltdown
Let's look at two key examples (below) of the correlation between the 10-year U.S. Treasury rate and the 30-year rate for times in our recent past when investors sought safe-haven assets like U.S. Treasuries:
- Jan. 5, 2000 (A few months before the dotcom bubble burst)
- 10-year Treasury rate was 6.62%
- The 30-year fixed-rate mortgage average was 8.13%
- The 10-year treasury rate was 4. 93%
- 30-year fixed interest rate was 7.07
- 10-year Treasury rate was 4. 37% t
- 30-year fixed mortgage average was 6. 21%
- 10-year Treasury rate was 3. 91%
- 30-year fixed rate mortgage average was 6.07%
The Bottom Line
According to Freddie Mac The average interest rate on a 30-year fixed-rate mortgage as of the reporting date was 23. June 2016 3. 56%. Although signs indicate lower mortgage rates in the short term, it is not entirely certain at this time. As mortgage rates lag Treasury rates, the coming weeks and months will reveal enough data to determine the initial effect on U.S. Treasuries and mortgage rates resulting from the rush of investors concerned about the Brexit vote. If we make only one decision based on similar economic events in the recent past, the data suggest that mortgage rates are more likely to fall as a result of the Brexit vote than not.