A month ago, the Federal Reserve announced it was buying $600 billion worth of bonds. This created a furor. It became a political issue. And it discouraged people from buying bonds unless yields were raised.
Mortgage interest rates are now at their highest point since May.
Higher loan rates “won’t be fun” for a fragile housing market, said Scott Simon, head of mortgage bonds at Newport Beach, Calif.-based Pacific Investment Management Co., manager of the world’s biggest bond fund. “If you were looking at buying a house a few weeks ago, the same house, to you, looks as much as 9 percent more expensive,” he said.
Investors in agency mortgage securities have suffered during this month’s crash in bond prices amid speculation that President Obama’s agreement to extend and expand tax cuts will bolster growth and inflation. While the drop hasn’t been as severe as for Treasuries, the effects of higher mortgage rates, along with climbing gasoline prices, will offset much of the tax package’s intended stimulative effects, according to Gluskin Sheff & Associates Chief Economist David Rosenberg.