How do mortgage rates get better when the economy gets worse?
Inflation is a primary factor that affects the Treasury bond markets and interest rate levels. Treasury bond investors do not like inflation because it eats away at the value of their fixed return investments. When the economy slows down, the threat of inflation is redi\uced and investors become more comfortable investing in long term debt. This is the reason the Treasury bond market rallies (bond prices move higher) on weak economic news. When the price of a Treasury bond moves higher an investor is forced to pay more for this investment, so its yield (return on investment) to the investor declines. When the yield on Treasury bonds decline the yield on all similar investments (including mortgage loans sold in the secondary market) decline as well. If a lender can sell mortgage loans at a lower interest rate to investors, the lender is likely to pass on these lower rates to you, the borrower.
