Oil has dropped below $100 a barrel this morning, and that’s giving the bond market a nice boost. Lower oil prices ease inflation worries, which is helping push mortgage rates lower today.

A quick note on the “carry trade” and Japan’s role in U.S. bonds: Japanese investors are among the largest foreign holders of U.S. Treasury bonds, largely through what’s known as the “carry trade”, borrowing money cheaply in Japan (where interest rates have historically been near zero) and investing it in higher-yielding U.S. bonds to pocket the difference.

When Japan’s own interest rates shift, or their currency moves significantly, it can trigger these investors to pull back on that trade, sometimes at a large scale. That matters for us because a pullback in Japanese demand for U.S. bonds can push our bond yields (and mortgage rates) higher, while renewed buying tends to help rates ease. It’s a good example of how closely U.S. mortgage rates are tied to global money flows, not just domestic news.

Have a fantastic week, and don’t hesitate to reach out with any questions!

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