"While the Fed doesn't directly set mortgage rates, APRs will typically move in the direction that lenders expect the federal funds rate to follow. Mortgage rates dropped last week as lenders were confident that the Federal Reserve would vote to lower the federal funds rate. In fact, the average 30-year APR dipped to just above 6% on September 16, the day before the decision was announced - a level it hasn't reached in nearly a year."
"Mortgage rates are now trending back up largely because the 10-year treasury bond yield has been on the rise even after the Fed's cut. While the direction of the federal funds rate can influence mortgage rates, bond yields chart a clearer path. Treasury bonds are considered a more secure investment than stocks and other higher-risk financial products because they're backed by the government."
The average 30-year fixed mortgage rate rose to 6.35% for the week ending Sept. 25. Rates fell sharply in the prior two weeks as lenders priced in an expected Federal Reserve rate cut. The Fed lowered the federal funds rate by 25 basis points, but mortgage rates increased again afterward because lenders had already adjusted prices ahead of the decision. Mortgage APRs tend to follow bond market movements more closely than the Fed funds rate. The 10-year Treasury yield climbed after the Fed action, reflecting falling bond prices and growing investor confidence. Higher Treasury yields push mortgage rates upward.
Read at SFGATE
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