Current Mortgage Interest Rates – Week of 10/9/12
Mortgage bonds reach their peak for a second straight week but fail to set new records. PIMCO bond fund manager and co-founder warns bonds could be “burned to a crisp”.
What happened with interest rates last week?
Mortgage bonds peaked at the best levels in history for the second straight week, signaling a new ceiling of resistance for bonds, with investors less willing to buy at historic levels. With mortgage interest rates still at or near historic lows, the Fed is accomplishing its goal of keeping rates low through the QE3 bond buying.
The economic news was light last week, leading up to Friday’s Jobs Report, where the Labor Department reported 114,000 new jobs in September and a falling Unemployment Rate of 7.8%. Both figures showed signs that the labor market is starting to see some level of improvement.
Positive headlines out of Europe led to investor selling pressures earlier in the week, but the Fed quickly stepped in to purchase the added supply. Further selling pressure came as Bill Gross, the manager of the world’s biggest bond fund with over $1.8 trillion in assets under management, warned that bonds could be “burned to a crisp” if the U.S. doesn’t tackle its debt problems. He further warns that if the U.S. does not change its fiscal direction, we jeopardize the U.S. Treasury and mortgage bonds’ status as the world’s go-to safe haven, in addition to the dollar’s role as the world’s premier reserve currency. This says a lot from a guy whose fund made $2.8 billion in cash last month from their Bond activity.
What’s coming up this week on the economic calendar and what’s the impact on interest rates?
The market was closed on Monday in observance of Columbus Day. Bond prices opened the week higher on Tuesday, following a report from the International Monetary Fund (IMF), stating that the world economy will grow by 3.3% this year, the slowest since 2009. News that’s bad for economic growth, but good for safe-haven bond buying and interest rates.
On the economic calendar, the activity will be light until Thursday at 9:30 CT when Initial Jobless Claims are released. Although the release shouldn’t have a big impact on mortgage interest rates, we will watch closely to gauge any growth in the employment sector. Also weighing on Bonds this week will be a $32 Billion 3-Year Note auction on Tuesday 10/9.
Having peaked at the same resistance levels and pulled back each of th
e last two weeks. From a technical standpoint, a “Double Top” has formed, signaling a short-term bearish signal. This technical signal appears when mortgage bonds have a rise, a drop, another rise of the same level, and another drop. Instead of breaking through the ceiling of resistance, the Bonds have been pushed lower at the resistance each time. After multiple attempts, odds are not good that the level will be broken in the near term.
Here’s our strategy for the days and weeks ahead…
Having attempted to break through and set new historic lows, mortgage backed securities have seen pretty steep sell-off since the end of last week. While we do expect interest rates to maintain their current trading range, I feel that the opportunity to buy a new home or refinance your current home at the lowest rates in history will not be around for long. That could be weeks, could be months, but the opportunity will not be around for years. If you’ve thought about selling and buying a home, it’s time to create a game plan.
The Fed will continue its Bond buying through QE3, maybe even a QE4, 5, 6…. But, we tend to agree with Mr. Gross and his PIMCO billions. The man understands the Bond market and has brought up a valid point that ties together our fiscal direction and the value of our U.S. Bonds and Dollars. As a “safe-haven” for the fearful global investor, we don’t realize how their safety-seeking investing has helped keep our markets afloat with their influx of capital. If the sentiment ever turns to our Dollar and Bonds not being a “safe-haven”, we could see bonds, rates, and our dollar suffer greatly.
Our clients that we have closing in the near term are advised to float their interest rate to see if Bonds can make another run at their historic levels. After a several week, upward trend, we will be switching our stance to a locking bias if selling pressures cause Bond prices to suffer. Longer term transactions occurring in the next few weeks to months, we recommend starting your approval process now to be in a position to lock in your rate when the opportunity arises.
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.
