How Changes in the Global Bond Market Affect Mortgage Interest Rates
Mortgage rates rose today from a surprise move from Japan. Here is a snapshot of what happened:
The global bond market is a vast network of interconnected financial institutions, investors, and governments that buy and sell debt securities to raise capital and fund their operations ~think of the 10-year Treasury. When one country makes changes to its bond market, it can have ripple effects on bond markets around the world.
For example, this gets slightly technical but stay with me, when the Bank of Japan (BOJ) made the surprise announcement to widen its target range for its 10-year Japanese government bond yields, it caused a stir in global markets. The BOJ's yield curve control (YCC) policy, which aims to maintain accommodative financial conditions and lift inflation toward its 2% target, had previously allowed the yield on 10-year Japanese government bonds (JGBs) to move 25 basis points on either side of its 0% target. However, the BOJ decided to increase this range to 50 basis points, which caught markets off guard and prompted a sell-off in bonds and stocks worldwide. ~ Keyword: “sell-off”.
The impact of the BOJ's decision on global markets was significant. The yen and bond yields worldwide rose, while stocks in the Asia-Pacific region tanked. The U.S. dollar fell 3.3% against the surging yen, and U.S. Treasury yields spiked, with the 10-year note climbing by around 7 basis points to just below 3.66%. ~
So, what does this have to do with mortgage interest rates? Well, mortgage rates are closely tied to bond yields, a measure of the interest investors receive for lending money to governments and other borrowers. When bond yields rise, mortgage rates follow suit, making it more expensive for homeowners to borrow money to buy or refinance a home. Keep in mind this is a short-term ripple effect, but it blows my mind to see how interconnected our world is now.
TL;DR ~ the global bond market is a complex and interconnected system that can significantly impact mortgage interest rates and the housing market. When one country changes its bond market, it can have reverberations worldwide, affecting the cost of borrowing money for homeowners and investors alike. Understanding how the global bond market works and how it can impact mortgage rates is crucial for anyone looking to buy or refinance a home.