Foreign nations buy U.S.-dollar denominated securities because of their relative stability. 

Mortgage-backed securities are among those securities.

And, for the unindoctrinated, it bears repeating that mortgage-backed bonds are what determine the day's rate for every mortgage product from the 6-month adjustable-rate mortgage all the way out the yield curve to the 50-year fixed mortgage.

Like all bonds, the more demand that there is for the security, the higher the price will be and, therefore, the lower its yield, or rate.

Over the past week or so, there have been whispers that China will be diversifying its portfolio of foreign holdings.  This is a big deal because a major part of China's holdings are our country's mortgage-backed securities.

If the circulating stories are true, then China will be replacing its MBS holdings with gold and with other foreign currencies. That will introduce a steady new supply of bonds, cause MBS prices to drop and mortgage rates to move higher.

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.