This cnnmoney.com article predicts that mortgage rates will be moving higher over the course of the next 6 months. The reasons?
-Increased supply of US treasury bills to pay for the financial bailout plan. When the supply of treasury’s increase it pushed yields higher for all fixed income securities including mortgage-backed bonds.
–FDIC’s plan to cover unsecured bank debt. As a part of the financial rescue plan the FDIC now has authority to effectively sell bonds to pay for bank deposit insurance. This represents a further supply in government issued bonds which could also contribute to higher interest rates.
-However, Mark Zandi correctly points out near the end of the article that spreads between 30-year treasury bonds and mortgage-backed bonds are close to 2% right now. Historically the spread is closer to 1.5% so a convergance in yields could help mortgage rates.