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  • Welcome to Charts that Count.

  • There are no upsides to a global health crisis.

  • But the coronavirus, if nothing else,

  • has made debt cheaper to bear, throwing

  • a lifeline to borrowers at a time

  • of incredible financial stress.

  • Acute worries about future growth,

  • abetted by an aggressive programme of bond buying

  • by the US Federal Reserve, has driven the yield on the US

  • 10-year Treasury down to just over half a per cent.

  • Other forms of debt caught in the same gravitational field

  • are getting cheaper too.

  • But who benefits?

  • Yes, governments and companies can borrow more cheaply.

  • But what about human beings?

  • Perhaps the most important way that lower rates

  • helps consumers and families is through lower-priced mortgages.

  • And indeed, the average rate on the US 30-year fixed rate

  • mortgage has fallen to 3.5 per cent, by historical standards

  • a very cheap mortgage.

  • One that any homeowner could brag

  • about at a backyard barbecue, if we're ever

  • going to have those again.

  • Look, however, at that little spike in mortgage rates just

  • after the Covid crisis began.

  • Investors, spooked by the idea that homeowners

  • would default on their mortgages,

  • lost their appetite for mortgage debt.

  • That left mortgage lenders with no place

  • to sell newly originated mortgages to.

  • Mortgage prices spiked and the market

  • clogged, prompting the Fed to step in and buy

  • mortgage bonds directly.

  • That seemed to work, bringing mortgage prices down.

  • But let's look closer.

  • This last chart shows the difference

  • between the 30-year mortgage rate and the 10-year Treasury.

  • This spread, as it is known, usually

  • hovers at around 1.5 to 2 percentage points.

  • This week, it stands at 3 per cent.

  • In other words, mortgages are not cheap, not cheap at all

  • given where government debt is trading.

  • If the Fed wants consumers to get

  • the full benefit of low interest rates,

  • it still has more work to do.

Welcome to Charts that Count.

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