Prime Rate and the 10 Year Treasury Note

Despite the turmoil in the mortgage industry, there is some good news out there! We are at a 2 year low for interest rates and according to the experts, the near term outlook is excellent.

The saying goes "Don't fight the Fed", and after favorable comments by Fed Chief Ben Bernanke in his speech Thursday, as well as a favorable inflation report on Friday, another Fed cut on December 11th seems to be certain. The question of whether the cut will be .25% or .50% has been highly influenced by Friday's Jobs Report

While a cut in the Fed Rate means a lower Prime Rate it does not necessarily result in a reduction in fixed mortgage rates. The Prime Rate affects Home Equity Lines and Credit Card rates but not the 10 Year Treasury Note. So when you hear that there is another Prime Rate reduction, please be aware that they are not cutting the 30 year fixed mortgage rate.

The 10 Year Treasury Note is what directly affects our fixed rate mortgage interest rates. The reason that the fixed rates are currently so low, is that investors are afraid of the equities market and have poured their funds into the fixed rate products, namely T-Bills and Bonds --- searching for safety and consequently driving down the yield on the 10 year Note and correspondingly bringing down the rates on fixed products. It’s the uncertainty that makes the market crazy --Remember the old mantra; Wall Street sells the rumor and buys the fact --- that is being played out now with all the reports, news stories and postings about our economy and where it actually stands.

If you have any questions on this or would like a rate quote, please call!

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