The following is my answer to a Quora
question: “Why
are bonds and mortgage rates intertwined?”
Both of them are debt instruments, the
same class of assets, and both tend to attract the same category of investors. When the market is turbulent, investors move
for debt instruments, and this creates a demand for them. And when the market is expanding, they lower
their exposure to debt instruments in favour of equity. Another reason is also because mortgages are
consolidated, rated, packaged, and resold as bonds to investors. In this sense, the mortgages are themselves
bonds.
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