The Federal Reserve decided to keep the federal funds rate unchanged, on Wednesday, which pleased the bond market.
The yield on a 10-year Treasury note dropped to 4.63 percent, by Thursday afternoon.
Mortgage loan rates track the 10-year notes, closely *.
Bankrate.com was quoting an average rate of 5.86% on a 30-year fixed rate mortgage loan, and a rate of 5.78% on a jumbo 30-year 5/1 adjustable mortgage loan.
* Usually, I should say. If you look at the chart, above, you will see that the rates began to diverge, just a couple months ago. Treasury note rates have dropped by more than the Fed funds rate target. This is because bond traders believe we’re done with interest rate hikes. This isn’t necessarily so, by any means! The Fed still fears raging inflation, and future rate hikes are still a possibility, if not a probability.
Says one fixed income analyst: “In terms of inflation, I keep whispering in the traders’ ears, ‘Look, core [prices], hourly wages, unit labor costs, they’re all at dangerous levels.’ They don’t care.”
They will, if suddenly faced with a tighter federal fiscal policy and higher lending rates, in first quarter, 2006.