Increased demand, market size and liquidity are all shielding U.S. mortgage interest rates from the impact of a recent downgrade of the rating on U.S. debt securities, according to CUNA Chief Economist Bill Hampel said Monday.
The ratings firm Standard and Poor's on Friday dropped the rating on U.S. securities from AAA to AA+.
“The chief interest rates that impact mortgage rates are the rates on 10-year U.S. securities and those have dropped since the downgrade,” Hampel pointed out.
He attributed the decline to ongoing demand for U.S. debit instruments by worldwide investors combined with the size and liquidity of the U.S. bond market.
“There may be other countries with higher debt ratings than the U.S. has right now,” Hampel said. “But their markets are not big enough to take the demand or they're not liquid enough for investors to be confident about getting their money out as easily.”
He also pointed out that Standard & Poor's had based the rating downgrade not on the U.S. ability to pay but on the possibility that the U.S. might not be able to make the political decisions to pay.
“There is a world of different between the situation in the U.S. and that of, say, Greece which would not be able to pay its debt even if it chose to do so,” Hampel said.