High borrowing costs defy rate cuts

0 Comments | USA TODAY, August, 2008 | by John Waggoner

The Federal Reserve Board has pushed short-term interest rates lower, but the credit crunch is raising borrowing costs for corporations and home buyers.

The Fed has nudged its key overnight federal funds rates down to 2% from 5.25% a year ago to stimulate the economy. Yields on Treasury securities, which have virtually no credit risk, have fallen, too. Uncle Sam can borrow money for 10 years at 3.82%, vs. 4.67% a year ago.

But 30-year fixed mortgage rates, which often follow the 10-year T-note yield closely, have barely budged the past 12 months, and have risen since the first of the year. Thirty-year fixed-rate mortgages averaged 6.52% last week, up from 6.17% Dec. 31, according to mortgage giant Freddie Mac.

The yield spread between...