Time to Get off the Fence!!!
We have had wonderful 5% and lower rates for sometime but the market is ticking up!!!
See the note from a good mortgage officer I know, David Katz. He just sent this so you are
on top of the news!!!
David's own words:
Everyone: Interest rates have risen dramatically over the last two days. Current interest rates are now 5.50% for both conventional and government loans. The increase in rates is due to the investment market believing the Federal Government can no longer support the artificially low interest rates we have had over the past two – three months without creating inflation.
Following is an article from the Wall Street Journal that details this belief. Please call me if you have any questions. Rise in Rates Jolts Markets Wall Street Journal, By Liz RappaportMay 28, 2009Treasury yields and mortgage rates surged Wednesday to their highest levels since November, dealing a blow to the Federal Reserve's efforts to stimulate the economy by keeping borrowing costs low.The gap between yields on two-year Treasury notes and 10-year notes, known as the yield curve, widened to 2.75 percentage points, its highest ever. Stocks also slipped as investors worried that the higher Treasury yield could jack up market interest rates, damping economic recovery. The Dow Jones Industrial Average dropped 173.47 points, erasing nearly all of Tuesday's 193-point gain, closing at 8300.02.The Fed has made low mortgage rates a priority in its strategy to stem the U.S. recession. To achieve that, the central bank has been buying mortgage-backed securities and Treasurys. Through programs announced since last fall, it has bought more than $460 billion of mortgage-backed securities and more than $125 billion of Treasury bonds.But the winds turned against the Fed in recent days, as investors worry the government's approach could lead to inflation. The government will sell nearly $2 trillion in U.S. Treasury bonds this year to fund its stimulus programs, and investors worry there won't be enough demand for it. Slack demand would send bond prices down and push up the government's cost of raising money."The market is looking at the over $1 trillion deficit and how we'll finance it and concluding it is too big to finance without Fed assistance. But Fed assistance is causing inflation worries," says James Bianco, president of Bianco Research. "We're caught in a vicious cycle."Likewise, signs of a recovery in the U.S. and across the globe have prompted investors to move out of the relative safety of the Treasury market and into securities that may yield more, such as corporate bonds, stocks and even emerging-market debt. While that's overall good news for the U.S., it makes it harder for the Fed to help reinvigorate the battered housing market, seen as a linchpin of any recovery.With higher interest rates on the horizon, investors have been moving out of longer-term Treasury bonds and into shorter-term debt to avoid the risk of rising rates. The 10-year Treasury bond yield rose Wednesday to 3.695%, reaching an intraday high of 3.732%, up from 3.491% Tuesday night. Its yield has been rising steadily over the past two weeks from 3.103% in mid-May.Treasury traders have expected the U.S. central bank to intervene to keep the 10-year Treasury bond yield at 3.5%. But the Fed has not been so exact in its purchases."The market has built an expectation that the Fed will step in and buy more Treasurys and expand its program to support the markets," says Christian Cooper, interest-rate strategist at RBC Capital Markets. "With that failing to materialize, investors are exiting."Higher interest rates, in turn, make existing mortgage-backed securities less attractive, because newer securities would be filled with loans that pay more interest. Once Treasury yields solidly surpassed 3.5%, investors sold nearly $10 billion worth of bonds backed by mortgage loans, analysts estimate.The yield on mortgage-backed securities over comparable Treasury bonds widened Wednesday to 1.59 percentage points, from 1.38 percentage points Tuesday, according to FTN Financial. That's the market's biggest sell-off since November.The average 30-year mortgage rate jumped Wednesday to 5.29% from 5.03% the previous day, according to HSH Associates, a mortgage-data publishing firm. That's the most dramatic swing since March 19, after the Fed announced its plans to buy more mortgage-backed securities and U.S. Treasury bonds."The perception prior to this month was that the Fed controlled the mortgage rates," says Stuart Spodek, co-head of U.S. fixed income for BlackRock Inc. But in recent weeks, the market has lost that sense. "The market is looking to see what the Fed does in response."Wednesday's rise in rates may put pressure on the Fed to increase its planned purchases of Treasurys beyond the $300 billion already earmarked, analysts said. At the late April meeting of the Fed's Open Market Committee, the central bankers considered raising the amount but held off. Some analysts and traders said the Fed may need to address the market's reactions before its next June 24 FOMC meeting.On Wednesday, the Federal Reserve Bank of New York announced its latest round of Treasury purchases, which include fewer purchases than in the prior two weeks. In the first two weeks of June, the Fed will buy Treasurys four times. In the last full two weeks of May it bought five times, the Fed said.To be sure, a 10-year interest rate at 3.7% is not historically high, and a steep yield curve can be seen as a sign of strength in the economy. It suggests that investors believe prices will rise, and they are willing to sell out of ultrasafe Treasury bonds and buy riskier debt. A steeper yield curve is also good for banks, because it allows them to borrow in the short term at lower interest rates and lend at higher rates for longer periods.But rising yields also make the government's rescue efforts more expensive. The government could have to borrow more to finance bailouts, and the Fed itself could lose money on the mortgage-backed securities and Treasurys it has already bought. The Fed has said it may buy as much as $1.25 trillion of mortgage securities.Wednesday morning, before the market sold off, the Treasury held a record $35 billion sale of five-year notes. The offer was met with relatively strong demand from foreign and domestic investors alike, traders said."We've seen very good reception for Treasury issuance," said Marcus Huie, Treasurys strategist for Deutsche Bank AG. "The market is testing the Fed to hold the current yield levels."The record purchases by the Fed and a general sense that the global economy is finding a bottom has also weighed on the dollar, which had been seen as a safe-harbor currency during the financial storm. Concerns about the U.S.'s long-term fiscal health have weakened the dollar since the U.K.'s triple-A credit rating was put on a Standard & Poor's watch list last Thursday.While the dollar strengthened Wednesday against the euro, its broader trajectory in recent weeks has been downward.Moody's Investors Service affirmed the U.S.'s triple-A rating on Wednesday, despite "significant deterioration in the U.S. government's debt position," according to a company statement. Moody's identified the dollar's underlying strengths. "The global role of the U.S. currency also contributes to the ability of the economy and government finances to rebound," said Moody's Vice President Steven Hess
No comments:
Post a Comment