Potential new spending and tax cut plansproposed by Donald Trump,along witha rate hike from the Federal Reservesent the interest rate on the U.S. government's 10-year Treasury note surging in the weeks after November 8.
Treasury notes serve as a benchmark for various types of credit, including mortgages. When rates move higher, it becomes more expensive to borrow money.
But it seems the hype might have started to wear off in the bond market. Bond yields dropped last week.
"It was a run up that was based on euphoria that we are going to see fiscal stimulus and that brings about faster economic growth," said Greg McBride, Bankrate's chief financial analyst. "But there has been a lot of that priced into that run up, and the reality is even if we do get fiscal stimulus that money might not hit the economy in 2017."
The higher rates have had an effect on the mortgage market recently, particularly refinancing activity. The number of mortgage applications dropped 12% from two weeks ago, according to the Mortgage Bankers Association, while its Refinance Index tumbled 22%.
But the bond market can be volatile, noted Len Kiefer deputy chief economist at Freddie Mac
"We are going to have to wait and see if this is an ongoing trend," he said.
McBride expects mortgage rates to gyrate throughout the year, but not to climb above 4.5%. "A trip below 4% is very likely in the event of an economic stumble or a market selloff."
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