Mortgage rates dropped. Let’s look at fundamentals that trigger a drop (or a rise) in mortgage rates.

As 10 Year Treasury prices rise – while yields drop in direct correlation to the price increases – interest rates on 30-year fixed rate mortgages will come down.

So how does this work?

When it has been determined – or shall we say, theorized – that we may encounter market volatility in the U.S., there is an inclination for investors to accept lower yields for “loans” they make to the United States government. Through their purchase of Treasuries.

Market volatility? Volatility means government bonds represent a stable place for investors to “park” their money. When compared to alternative investment vehicles. Such as the stock market.

Within a socioeconomic environment where there is a high level of demand for 10 Year Treasuries, bids by investors for Treasuries would (more likely than not) come in at or above the face value of Treasuries.

Increasing bond prices drive down bond yields. This is so because investors are willing to accept lower coupon rates for bonds in exchange for the de-facto “loans” they are making to the United States government. Through their purchase of 10 Year Treasuries.