Current Interest Rates – Week of 6/4/12

Opportunity is defined as a favorable juncture of circumstances.  That is exactly what we see today in the current interest rate environment, an opportunity to seize the lowest interest rate in history, but these circumstances could change quickly.

 

What happened with interest rates last week?

The markets were flooded with more bad news out of Europe causing interest rates to break through all time lows, setting the stage for another run towards the history books.  Throw in a bad Chicago PMI report, fewer added jobs and the employment rate ticking up to 8.2%, – that’s a recipe for a stock sell-off with investors moving their money into safer mortgage backed securities.  As we pointed out in our last mid-week market update, this opportunity could be short lived.

 

What’s coming up this week on the economic calendar and what’s the impact on interest rates?

After last weeks turbulent ride of the Euro Zone waves, the stock markets hope to rebound on this slow economic news week.  The S&P 500 closed beneath it’s 200 day moving average showing some bad signs, should stocks fall convincingly below this level (1,284).  We’ll be watching this closely since a rally from stocks above this 200 dma would signal a potential rally in stocks, causing our interest rates to suffer.

Economic reports due this week will start with the ISM Services Index on Tuesday morning and will wrap up with Initial Jobless Claims on Thursday.  The Jobless Claims only reports new applications of unemployment and only people who register their unemployment with the State, so there is little weight given to the data.  Neither report should have much impact on the market.

 

Here’s our strategy for the days and weeks ahead…

Once again, we go into the week with historically low interest rates, interest rates that are trying to break through to lower levels on any given day.  The slow news week will put interest rates at the mercy of news coming out of Europe and our local markets.  The next big potential catalyst on the calendar is the FOMC meeting on June 20th, more specifically how QE3 (quantitative easing part III) is referenced.  No, we’re not talking about a new IMAX-3d movie, but the “stimulus” or “infusion” by the government and Fed to further stimulate the growth of our economy.  A failure to show further signs of recovery in our local and global markets, may trigger the Fed to implement QE3.  This may seem like good news for interest rates, the government ponying up somewhere around half a trillion dollars to buy mortgage backed securities, but as we look back at further stimulus and easing announcements, interest rates have sold off at a rapid rate (see fig. 1).  This may seem counter-intuitive, but more printing of money and pushing it into the economy, only increases the long term risk of inflation – as inflation goes up, so do interest rates.

All this to say, there is an opportunity that has presented itself leading up to the FOMC meeting on June 20th.  We don’t know if QE3 will be released or how the markets react, but we do know how the markets have responded in the past.  If you have a need for financing in the next 30 days, it may be worth locking while rates sit at historic lows.  If you’re financing is further out, it’s time to put a strategy in place so that you can take advantage of the market before it gets away. When the market decides to move in a given direction, we don’t always have days or weeks to decide.  The “best rates” are only available to those that can lock at the right time.

We maintain an ongoing dialogue with our clients about the market and interest rates throughout their financing experience so we can take advantage of the lowest rates when they present themselves.  We all want the lowest rate, and the best way to ensure that you get the lowest rate, is to build a relationship with your mortgage planner, so they can best advise you on when to lock in your rate.  Call us today for a complimentary mortgage review or Apply Online.