Rising rates pose no threat to growth

The 130 bps rise in 10-yr Treasury yields that has occurred since October has resulted in a slightly smaller rise in MBS yields, and in an even smaller rise in the cost of conforming 30-yr fixed rate mortgages. As these charts show, yields in general are still quite low from a recent historical perspective, and MBS spreads are also still quite low.

The main driver of higher yields is a stronger economy. If the Fed were driving yields higher and if the yield curve were flat or inverted, then you could say that higher rates posed a threat to growth. But we are a long way away from that—it could take years before higher rates threaten the economy. For now, higher rates are welcome because they reflect stronger growth and stronger loan demand.