As recorded by Freddie Mac, since 2006, 30-year fixed-rate conforming mortgage rate have made a habit of rising in May, June, July and August before settling down through football season. This year, the “June Swoon” looks especially strong. Mortgage rates are higher by 3/4 percent versus late-May and we’re only at the start of the summer trend.
The biggest reason why mortgage rates are up is because of inflation fears. Inflation devalues the U.S. dollar and renders fixed-rate investments — a set that includes mortgage-backed bonds — become less attractive to investors. When the dollar is worth less, bond repayments are worth less, too. This is why traders don’t like holding mortgage bonds in their portfolios when inflation looms — it can be a real money-loser. So, mortgage bonds tend to sell-off when inflation is coming which, in turn, causes mortgage-backed bond prices to fall.
Bottom line for cocktail party conversation: Lower bond prices yields higher mortgage rates.
