Interest rate fact of the day

As of yesterday, lenders were charging an average of 7.34 percent
for prime, 30-year, fixed-rate jumbo loans, according to financial
publisher HSH Associates.  That was up from an average of 7.09 percent
last week.

It was also 0.75 percentage points more than the 6.59
percent they were charging for conforming loans.  In mid-July, the
difference between the two types of loans was 0.20 percentage points.

If you think this is only a liquidity event, there is of course a profit opportunity.  Note that the 10-year T-Bond rate has been falling.  I am more inclined to think we are returning to a more reasonable spread between mortgages and Treasuries; let’s hope the transition is a relatively smooth one.  If trading volume is low, traders may fear the other trader knows something he doesn’t ("no-trade" theorems are one source of Robin Hanson’s theorems on disagreement between persons), and we’re not yet in a new regime where such concerns are shrugged off or attributed to mere churning.  Since regular trading is part of what brings expectations to such a new regime, the adjustment doesn’t generally occur right away (even when prices are flexible) and the ride can be a rocky one indeed. 

Here is the cited article.


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