Why are rates so low, I have a guess

As most consumers know because they have been pounded on by national lenders, rates continue to live in uncharted territory. Back in April there was a swing up in reaction to the fed exiting the Mortgage Backed Securities market. Within a couple of weeks though we returned to the 5% range.

Then, Europe ( spcifically Greece ) began having problems with generating enough tax revenue to pay all its' bills. As with the beginning of the mortgage meltdown anything even remotely associated with Greece was perceived as having the same issues. While that was not entitrely the case the perception that the EuroZone was not a safe place to invest had folks looking elsewhere to put their money.

Enter the US MBS market and a flight to safety, or the perception of it. Ask any borrower in the last 18 to 24 months and to a fault they will all say how difficult it was to get approved. After all the twists and contortions in the mortgage industry underwriting standards have become much more stringent and these instruments were or appeared to be effectively insured by the US Government. Investors simply were looking for a safe haven and the MBS market has provided that.

As much as investors loved the incredible returns on their MBS plays in the 00's now the MBS market is giving them something they want more, safety and security. If I were an institutional investor looking to make up for the mistakes of the last 5 years it might be that going back into MBS's would be the way to go. It might seem odd to go back to the thing that caused the issue in the first place but I would hazard a guess that now that these securites are so antiseptic or sterile they look pretty spiffy.

No rates are not down because the banking system is going to hell or that there is some evil plot by the banks to take over the world. As Karl Denniger is fond of saying, that's moon bats and tinfoil hat talk.