Operation Twist and the 30-Year Fixed Rate Mortgage
Guest post by D Short.
Yields have risen rather noticeably in the past six trading sessions. The 10-year note had been hovering around the two percent level for the past few months after hitting its historic low of 1.72 immediately following the September 21st announcement of Operation Twist. Despite the Fed’s stated purpose of lowering long-term interest rates, the 10-year steadily rose to an interim high of 2.42 on October 27th, but it soon settled into a pattern of hovering around 2.00 with the one quick dip to 1.82 and an upper range of 2.11.
The pattern now appears to be changing. The 10-year closed at 2.14 on March 13, a one-day increase of ten basis points, and since then it has pushed upward to closing lows of 2.39 and 2.38 — just below the interim high of last October.
Tomorrow we’ll get the latest Freddie Mac weekly rate on the 30-year, which is also beginning to rise. Meanwhile bankrate.com’s latest update on the 30-year fixed is north of four percent at 4.07%.
Here is a snapshot of selected yields and the 30-year fixed mortgage since the inception of Operation Twist.
Background Perspective on Yields
The first chart shows the daily performance of several Treasuries and the Fed Funds Rate (FFR) since 2007. The source for the yields is the Daily Treasury Yield Curve Rates from the US Department of the Treasury and the New York Fed’s website for the FFR.
Here’s a closer look at the past year with the 30-year fixed mortgage added to the mix (excluding points).
Here’s a comparison of the yield curve at two points in time: 1) today’s close and 2) the daily close on the market’s interim high on April 29th.
The next chart shows the 2- and 10-year yields with the 2-10 spread highlighted in the background.
The final chart is an overlay of the CBOE Interest Rate 10-Year Treasury Note (TNX) and the S&P 500.
The final chart shows the percent change for a basket of eight Treasuries since the initiation of the second round of quantitative easing on November 4th, 2010.
For a long-term view of weekly Treasury yields, also focusing on the 10-year, see my Treasury Yields in Perspective.