What is a MBS and how does it affect the mortgage market

Mortgage rates are based on Mortgage Backed Securities(MBS) not the Treasuries. If the bonds sell for a high then mortgage interest rates go down. If bonds sell low then mortgage interest rates go up. The answer is pretty simple. This move is measured in ticks. A move up or down may not change rates.

Bonds are affected by many economic forces that influence the demand for bonds. Each week the Fed releases various economic reports that affect bond movement. Foreign markets also can affect the bond market which in return will affect mortgage interest rates. For example, when the Euro Central Bank and Central Bank of New Zealand hiked up their version of the discount rate, many investors sold off their bonds looking for a higher rate of return in their investment. Japan and China hold a good amount of our bonds, so if they decided to sell them to diversify their portfolio that could really affect the bond market and affect mortgage interest rates in a negative way.

I hope you find this information useful as you try to understand mortgage interest rate movement.

JS