Daily Economic Update: 10-Year Treasury, Builder Confidence

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights the 10-year treasury and the Home Builder's Housing Market Index.

• The 10-year Treasury borrowing rate is at 2.9% this morning.  That is down one point from last week’s rate of 3.1%.  It implies that mortgage rates will be a tad lower this week.  The low U.S. government borrowing rate also implies that the global bond investors are unconcerned about the U.S. debt ceiling issue and possible default.
• The 30-year Treasury borrowing rate is less important for mortgage rates that the 10-year.  This is because most 30-year fixed rates do not last for 30 years, but for 10 years or less because of refinancing or a change in residence.  However, the spread of the 30-year over the 10-year rate has been opening up.
• The 30-year government borrowing rate is normally only 1 percentage point higher, but is now at 4.25%, which is 1.3 percentage points above the 10-year rate (graph below).  The one strong plausible explanation is that bond investors are getting fearful of distant future inflation.  When there is inflation, money loses value, so one has to charge higher rates to compensate for the loss in the purchasing power.  The record high gold price is another indication of investors’ expectation of higher inflation in coming years.
• On another economic data note, the National Association of Home Builders index on its member sentiment about the market showed a slight improvement.  The index was 15 in June, up from 13 in the prior month, but a figure of 50 would be considered a neutral outlook.  The latest data is only indicating that things are less bad now than they were a few months ago for homebuilders.