Weekly Market Commentary: Mortgage bond prices were lower last week, which pushed mortgage rates slightly higher. Trading was calm the first few days of the week and then returned to the frantic trading we saw throughout the year. Stronger than expected ADP employment and gross domestic product data Wednesday sent rates sharply higher. We recovered some of the losses Friday morning. The payrolls component of the employment report was weaker than expected. Payrolls rose 162k versus the expected 184k mark. Factory Orders rose 1.5% versus the expected 2.2% increase and also helped rates rebound from the earlier spikes. Unfortunately, mortgage interest rates finished the week worse by approximately 1/8 of a discount point. Globalization Economic globalization is the increasing interdependence of national economies through trade, finances, and technology. While economists debate the pros and cons of globalization, the fact remains that globalization is not new and continues to expand. As a driving force in the global economy, the US often benefits when foreign economies struggle. A prime example is the eurozone. Last year there were major concerns tied to struggling economies in Spain, Italy, and Greece. Unlike a corporation, a country cannot file for bankruptcy when they can’t make debt payments. One remedy in situations like this has been restructuring the debt, which is mired in uncertainty for investors. A big global concern was the fear that a default by one member of the European Union could ripple throughout all the other euro zone countries. In times like that, investors often move funds to safe havens in what is called a “flight to quality.” This is exactly what we witnessed the past year as US debt instruments saw an influx of foreign investment. Bond prices rose, which caused mortgage interest rates to fall. From a short-term perspective it was great for U.S. homebuyers and those refinancing if they took advantage of the drop in rates. However, what goes up often comes down and we have witnessed some reversal of the flight to quality buying of US debt from time to time as the eurozone showed some signs of stability. Nobody can say with certainty how it will all play out. Stability isn’t growth and bailout money can’t last forever. As a result, we should expect continued mortgage interest rate volatility. Fortunately the Fed’s effort to buy mortgage bonds and keep rates low has had success despite recent rate increases. Inflation remains in check and the Fed works hard to maintain the low interest rate environment. Inflation, real or perceived, erodes the value of fixed income securities generally causing prices to fall and rates to rise. Rising energy price concerns always linger. Now is a great time to take advantage of rates at these levels. While the future is uncertain, continued volatility is likely.
Posted on: Fri, 02 Aug 2013 19:24:47 +0000