The Wall Street Journal reports that banks will consolidate mortgage loans. Thanks to changes in the Federal Reserve’s policy, it is now cheaper for banks to obtain loans than it has been for a while. The other effect of a reduced LIBOR rate seems to be lower mortgage rates. Rates have been declining for decades. Depending on when you opened a new mortgage in 2018, it would have been among the lowest historically available rates.
While there is no direct correlation between mortgage rates and the stock market in general, the fixed cost of mortgages is money that is not available to invest or spend immediately. Therefore, the lowest rates, especially for the best-qualified buyers, can amount to more capital available for investment.
Mortgage-backed securities are not only based on the success of the loans, but also on the sale of new mortgages. Lower rates clearly equate to higher sales. All these factors can contribute to a more bullish market situation. MBG replicates “as close as possible, the price and yield performance of the Barclays Capital US MBS index.” The Index measures the performance of the mortgage transfer segment of the United States Agency of the bond market of investment of the United States “.
MBG is currently working to exceed its three-month high of $ 25.61. Friday’s operations took him to $ 25.57. The volume was heavier at the beginning of the week. MBG is one of the many good indicators to evaluate the health of the mortgage market. Here is that 3 month chart:
MBG is not the only one that has been gaining momentum. The Vanguard Mortgage-Backed Securities ETF has grown at almost the same rate.
While we are far from the housing bubble that contributed to the global financial crisis, it certainly seems that the market is optimistic about mortgages and related bonds.
The Crypto Market Versus Mortgage Securities
However, there is another aspect of lower mortgage rates to explore. At the macro level, the money available to invest in cryptocurrencies also increases. Now let’s add to this graph the performance of Ethereum and Bitcoin during the same period, just to see what happens.
Ethereum and Bitcoin have lost, while mortgage markets have maintained small but steady gains. The short-term graphs of these mortgage symbols show some chaos. But investing exactly the same sums in mortgages would have allowed him to obtain a palpable yield in the meantime, since neither ETH nor BTC have achieved a total recovery at December levels.
Reading this picture too deeply can give the impression that people were selling their crypts and buying mortgages. It is likely to be a case of exotic study.
Now, how are the broader markets located against these mortgage securities?
What we see here is that when markets in general work poorly, the yield of mortgage security is not affected to a large extent. This is because these values are driven more by government policy and the performance of loans, which in general do not depend on the performance of the stock market.
Lower mortgage rates mean stronger markets
However, when the stock markets start to price higher, or vice versa, so do the mortgage markets. The correlation there is approximately double the percentage gains: NYA and IXIC earn around 3 percent during the same period that MBG and VBMS earn approximately 1.5.
The lower mortgage interest rates are just a bad thing if you are trying to pay your house before. Rates at 15 years are consistently lower. It seems that, as the market advances, the more money banks have to lend at a cheaper rate, the better the market can work. Not only because real estate investors have excess capital to generate activity in other departments, but also because Americans have more money in their pockets to spend in the now, so they generate calls for favorable profits, or speculate in the in front of the next. great cryptocurrency corrida corrida.
Also published on Medium.