With a light schedule of economic data, Treasury auctions and comments from Fed officials were the primary influences on Austin mortgage rates this week. Strong auction results on Tuesday and Wednesday pushed mortgage rates to the lowest levels seen in months. The final auction on Thursday, however, saw much weaker demand. Reacting to this, along with hints of tighter monetary policy from Fed Chief Bernanke Thursday evening, mortgage rates gave back their improvement and ended the week a little higher.

Investor demand was stronger than average for the 3-yr and 10-yr Treasury auctions, which made the weak results in the 30-yr auction a surprise. Longer-term Treasuries are comparable investments to mortgage-backed securities (MBS), which largely determine mortgage rates, so the results from 10-yr and 30-yr auctions are particularly important. To increase demand, yields must rise. This means that if weak demand for long-term Treasuries continues in future auctions, it would likely push Austin mortgage rates higher as well.

Recently, Fed officials have sent mixed signals about how soon the Fed may need to begin to tighten monetary policy. Wednesday, the Fed’s Hoenig said that the Fed should begin raising interest rates “sooner rather than later,” and that this action wouldn’t end the economic recovery. He explained that the Fed has a long way to go just to return to a neutral monetary stance and that it will take a while for the impact of rate hikes to be felt. Thursday evening, Bernanke held with the stated view that low rates will likely be justified for “an extended period”, but he added that the Fed will be ready to remove stimulus as the economy recovers. When the Fed eventually indicates that it’s ready to act, Austin mortgage rates will be likely to move higher.