Current Interest Rates – Week of 5/14/12
What happened with interest rates last week?
There wasn’t a whole lot of movement with interest rates last week as mortgage backed securities continue to trade at all time highs, yielding some of the lowest interest rates ever. Political tensions in Europe continue to raise questions of stability in global markets, causing investors to seek the safe haven of US government securities and Mortgage Bonds and drive our yield (rates) lower. Investors are taking profits anywhere/anytime they can get them, following cues from global and economic reports. Aside from the continued European woes, JP Morgan reported a $2 billion loss that is weighing on stocks and brings on more fear-based bond buying, for now.
What’s coming up this week on the economic calendar and what’s the impact on interest rates?
This week’s economic news kicks off with the release of the Consumer Price Index (CPI) on Tue. May 15th at 7:30 CT. CPI is a measure of inflation based on a fixed basket of goods. In other words, what’s the “bang for your buck”. If this comes in higher than the expected (.2%), look for interest rates to suffer.
Next on the schedule is release of the FOMC minutes on Wed. at 1pm CT. The key points that investors will be looking for are the verbiage surrounding “inflation” and whether there is a likelihood for further “help” to the markets through Quantitative Easing 3 (QE3). The last FOMC commentary indicated that there would not be a QE3 anytime soon, but will be watching closely for changes in this policy. While further easing may not be the ultimate long term solution, it would cause interest rates to push closer towards a 30 yr. fixed at somewhere around 3.5%.
What’s the Fed have to say about inflation? Probably not much, but the markets will be listening for any clues that inflation is on the rise. The Fed has already pledged to keep interest rates at low levels through mid-2013 but their way of doing that is printing money to buy more bonds (like QE1, QE2, and Operation Twist). More money gets printed and into the economy, the more risk you have for inflation. The higher inflation, the higher that interest rates will be. See where we’re headed here?
Here’s our strategy for the days and weeks ahead…
Interest rates are at historic lows giving homeowners and home buyers an opportunity to afford more home than they ever could in the past. While rates could continue to get lower and set new historic lows, markets can move extremely fast in this volatile world economy. Our team will be monitoring the mortgage backed securities closely as the economic news unfolds so that we can advise clients and referral partners on their best opportunity to lock in the lowest rate. If you’re on the fence, kindly start working your way down. Rates can not hold at these levels for a long period of time.
