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Lawler: Mortgage/Treasury Spreads Part II: “Decomposing” the Widening This Year


by Calculated Risk on 5/16/2022 12:51:00 PM

Today, in the Calculated Risk Real Estate Newsletter: Lawler: Mortgage/Treasury Spreads Part II: “Decomposing” the Widening This Year

A brief excerpt:

From housing economist Tom Lawler:

From the end of last year to May 6th of this year 30-year fixed mortgage rates increased by about 237 basis points, the largest increase over such a short period of time since the early 1980’s. Over that same period other interest rates went up sharply as well, including Treasury rates, but the increases in Treasury rates was significantly lower than the rise in mortgage rates.

Click on graph for larger image.

During this same period, Fannie Mae’s required net yield on purchases of 30-year fixed-rate mortgages for delivery in 30-days, which is set based on prices of mortgage-backed securities, also increased by 233 basis points. As such, almost all of the “widening” in the spread between mortgage rates and Treasury rates reflected a widening in MBS yields relative to Treasury yields.

So: why did MBS yields increase by much more than Treasury yields over this period?

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