Will MTG rates drop when the Fed raises rates again? I think So
This is a great article which addresses the spread between the 10 year bond and the 30 year MTG rate.
Current Spread Overview
Typically, this spread is 1.5%-2%. Basically, that means if the 10 year bond is at 2%, then the 30 year MTG should be 3.5% to 4%.
Currently, the 10 year bond is about 3.5% and the 30 yr MTG is 6.5%, so there is a spread of 3%, which is a lot more than the historical average.
Reasons for the Current Spread
Most people believe this is the case because markets are afraid due to volatility of things. A lot of this is because people do not know what the FED is going to do.
Future Projections
I firmly believe that once people and the market see the FED moderating their rate increases, then this spread will come back down from 3% to 2%.
Basically, if the Fed indicates that it is going to pause their rate hikes and keep rates steady, things will go back to "NORMAL".
What We Could See
Federal Funds rate going from 4.25% to 4.5%
10 year bond going from 3.5% to 3.75%
Spread between 10 yr bond and 30 yr MTG dropping from 3% to 2.5%
As a result, interest rates could drop from 6.5% (3.5% + 3% spread) to 6.25% (3.75% + 2.5% spread).
If markets calm further with the FED slowing or stopping interest rate hikes, that spread will reduce to 2%, and 30 year MTG rates will drop even more.
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