This week, economic analysts reported that “real 10-year yields” reached record lows on Wednesday morning. The data shows the average yields for mortgage-backed securities (MBS) were below -$1. This price refers to the average cost of buying $100 of an MBS bond.

What Are Inflation-Adjusted Yields?

When we say “real” yields, this means we are talking about “inflation-adjusted” MBS yields. We are not referring to regular 10-year Treasury bond yields. Those were actually higher as of Wednesday morning at a price of 1.49.

The important thing to understand about this data is that the “real” MBS yields are at record lows because of a large spike in inflation. “Inflation-adjusted” yields also rely upon Treasury inflation-protected securities (TIPS) trading levels, which have only been measured since the 1990s. Most economists expected high rates of inflation as 2021 progressed. These yields are a clear sign that inflation is upon us and will have a significant impact on all economic markets, including mortgage and real estate.

This graph from Mortgage News Daily shows the comparative yield trends:

Inflation’s Effect on Mortgages

For the mortgage industry, inflation means that home buyers have less buying power. The dollar simply isn’t worth as much. As home prices continue to rise and mortgage rates slide upward, it can create a tough situation. Inflation-adjusted MBS yields and regular 10-year Treasury bond yields are two data points we tend to look at when trying to understand how mortgage rates will be affected.

Most of the current losses in the real 10-year yields happened during Tuesday night’s trading session. We will have to see how the rest of the week progresses. Many experts are anticipating “ghost town” trading conditions on Friday, which is when there is an unusually low amount of trading happening because of a variety of economic factors.

What it Means for Mortgage Borrowers

Understanding yield markets and other trends is a good way to track and anticipate the trajectory of mortgage rates. Inflation typically pushes mortgage rates upward. However, we are still in a unique economy recovering from the pandemic, so it’s hard to predict exactly what to expect. The rates have definitely been creeping upward throughout 2021, but are staying at historically low levels. This is still a great time to buy a house and take advantage of current market conditions. They may not last as inflation continues to rise.

If you have questions about mortgage rates or want to get started with your home loan or refinance application, contact Transparent Mortgage today at (619) 431-0754 or email me at beau@tspmortgage.com

Beau Hodson

Beau Hodson

About the Author Since 2003, Beau has been a mortgage professional and is a leading mortgage broker and lender in San Diego. As Founder and Senior Mortgage Advisor at Transparent Mortgage, he is truly committed to serving the needs of his clients and raising industry standards for integrity and transparency.