Yields Higher Causing Mortgage Rates to Rise

For the last three months the government has done everything in their power to make sure mortgage rates stayed under 5%.  First their was a tax cut created for new home buyers.  New home buyers receive an $8000 tax cut if they buy a home before December 1st, 2009.  Then came the Making Home Affordable plan that President Obama hoped would help individuals lock in at low rates and refinance their homes are rates that were once unattainable.  Ben Bernanke then announced that the Federal Reserve Bank was going to buy back over $1 trillion in mortgage backed securities.  To compound matters, the Fed was going to buy back these securities with money they printed rather than with tax dollars.

With all of this going on for the last three months, it is no wonder that mortgage rates fell to almost all time lows.  The problem was that these were artificial rates that were completely created by the Obama administration.  Free market captalism was not allowed to work and the overall government played too big of a part in the interest rates.  Now, free markets are starting to work once again as the 10 year treasury yield is dictating where overall rates are headed.  Since 1971, there has been a very strong correlation with rates and the 10 year treasury yield.  When the yield goes lower, mortgage rates follow; if the yield goes higher, so do mortgage rates.  Since the beginning of the year, the yield has seen a steady uptrend but rates have declined.  Now that the government has run out of ammo to keep rates down, it looks like they will follow the 10 year yield and start going higher.