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Is there one? One news item from today reads: “Fannie 3.5’s are up to 102-21 (still 1 tick down on the day, but well off earlier lows at 102-13). This has been enough for one lender to reprice for the better, but we probably won’t see too many more unless we see further gains, or if current levels hold very flat for the rest of the day. Even then, it’s the "further gains” thing that we really need."
Price and yield move inversely; as the price of a bond goes down, the yield goes up, because you’re guaranteed the same return on a lower principal.
Well, if no one’s going to answer let me float a theory: If bond (MBS) prices fall, yield goes up; if yields go up, a lending bank needs to raise its mortgage rates such that a consumer loan is a better use of capital than investing in the equivalent MBS. Inversely, if MBS prices rise, yield goes down, and banks may (but need not, depending on competition) lower their rates and still beat MBS yields.
I have the same question. My broker showed me a chart of FNMA 30yr, 3.5, and told me that the underlying security shows opposite trend of the mortgage rate, i.e. the higher the price of the stock, the lower the interest rate, and vice versa. I haven’t figured out why this is the case. Can somebody explain it?