The 30-year fixed rate mortgage hit a record low last week of 4.49% as the 10-year Treasury rate fell below 3% due to economic concerns in Europe and soft US economic data. Oil prices jumped 7% last week to over $82 per barrel after fluctuating in previous months. Mortgage rates could rise from higher oil prices as they increase production and consumer costs, putting upward pressure on Treasury and mortgage rates, though the rate spread may shrink in the short term as MBS investors purchase more mortgages due to higher yields.

1. Daily Economic Update
Daily Economic Update
August 9 , 2010
 The average 30 year fixed rate mortgage hit an all time record low of 4.49% last week
The average 30‐year fixed rate mortgage hit an all‐time record low of 4 49% last week
as measured by Freddie Mac. The spread between the 30‐year fixed and the 10‐year
Treasury, which normally track in the same direction, has widened over the last few
weeks as the Treasury has sunk below 3.0% on economic concerns in Europe, soft U.S.
economic data and the BP oil spill.
economic data and the BP oil spill
 After hitting a low of $66.8 per barrel in late May and floundering in June, oil prices
began to climb in July and jumped 7% last week from the prior week to finish at above
$82 per barrel.
 One reason for the increased spread between the 30‐year fixed rate mortgage and the
10‐year Treasury is that mortgage investors have less incentive to buy mortgage
securities as rates go below 5.0%. Rates significantly below 5.0% could trigger a wave
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of refinancing, thereby cannibalizing the holdings in the portfolios of MBS investors.
 Higher oil prices will work their way through the production cycle and into consumer
prices soon. This process will place upward pressure on long‐term Treasury rates and
mortgage rates. However, the 30‐year fixed rate mortgage rate may not rise as much as
the 10 year Treasury rate in the short term as MBS investors increase purchases to take
the 10‐year Treasury rate in the short term as MBS investors increase purchases to take
advantage of higher mortgage yields causing the rate spread to shrink.
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