There are many market indicators that will help you to know when would be a good time to lock mortgage rates. Some of these are Bureau of Labor, Consumer Price Index, Gross Domestic Product, National Association of Purchasing Managers (NAPM) Index, New Home Sales, Personal Income and Outlays, Producer Price Index, Retail Sales Index. One of the more important indicators is the 10 year T-Bill Yield.
The Fed has a few different ways it makes money. One is tax on personal and business income, property, and estates. The second is the issuance of fixed-income securities which are backed by the full security of the U.S. Treasury Department. These securities can include savings bonds, bills, and notes. The quickest yielding security is the Treasury Bill or T-Bill. This bill takes the shortest time to mature and is considered to have definitively risk-free return on the initial investment.
Fixed rate mortgage interest rates are in fact directly affected by the fluctuations in bond yield rates. As bond yields increase, interest rates for mortgages rise. Ten year fixed rate mortgage interest rates change as 10 year T-Bills change, 15 year mortgage interest rates change as 15 year bonds change and so on.
In hard economic times, investors will carefully select which investments will offer the best return at the least amount of risk. Since bonds such as T-Bills offer a guaranteed return and are ultra-safe, they are purchased when the market is low or drastically fluctuating.
One must take into account, no matter what the bond is sold for, the U.S. Government only guarantees the face value plus the set interest rate. Therefore, if bonds are sold for less than face value at auction, the yield increases. This increase will transfer as an increase in mortgage interest rates.
When yield rates are low on T-Bills, the mortgage rates follow suit by dropping steadily. This trend offers buyers an opportunity to purchase property at a lower than normal interest rate, in turn increasing home sales. As investors begin to purchase mortgage-backed securities in response to the upswing of home purchases, the yields begin to rise again and in turn the economy begins to improve as well.
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