Mortgage Rates Drop After U.S. Credit Downgrade
Mortgage rates continue drifting downward, despite — or because of — a ratings downgrade on long-term U.S. government debt. Standard & Poors issued a single-notch downgrade after Friday’s market close, from AAA to AA+.
Of the roughly $9.4 billion in publicly-held U.S. debt, 72 percent is long-term (i.e. with duration of 2 years or longer).
U.S. short-term debt was not downgraded.
When an entity — government, business, or other — is cited for a credit downgrade, it means that the risk of lending money to that entity has increased. In theory, higher risk should lead to higher borrowing costs and higher consumer rates.
Except in today’s U.S. Treasury and mortgage bond markets, the opposite is occurring. U.S.-backed bonds are in demand, leading rates lower. It’s an unexpected response to the S&P downgrade. (more…)