Uncertainty Over A US Debt Default Pushes Mortgage Rates Higher This Week

“Mortgage rates moved higher this week as uncertainty over a potential US debt default is causing investors to pull back,” said Orphe Divounguy, senior macroeconomist at Zillow Home Loans. “Investors are increasingly keeping an eye on debt ceiling negotiations. Earlier this week, Treasury Secretary Janet Yellen said the U.S. risks defaulting on its debt as soon as June 1 if a deal is not struck. The unlikely event of debt default would lead to a credit crisis that could wreak havoc on the financial system and the economy. A default is widely expected to result in a large income shock that pushes the US economy in a recession.

This is coming on top of ongoing credit tightening due to banking sector weakness and comments by a number of Federal Reserve Bank officials reiterating the view that inflation may still be too high. Cooling inflation would put downward pressure on long-term interest rates like the 10-yr Treasury yield which mortgage rates tend to follow.

Mortgage rate volatility will remain elevated as investors pay close attention to the debt ceiling negotiations and this week’s inflation reading from the PCE price index.”

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