Oct 062016

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By G. Steven Bray

The mood of the market has shifted. The last few months has been marked by complacency. Interest rates might have been bounced around a little by surprising events and economic data, but overall, rates never left a rather narrow range. That may be changing, at least for the short term.

The mood seems to be one of fear – fear that central bankers are going to take away the punch bowl. Since the economic collapse almost 10 years ago, central banks have been pumping money into the world economies. One way they’ve done this is by buying sovereign debt, like US Treasuries bonds.

A rumor has been circulating that the European Central Bank (ECB) is talking about tapering its bond-buying program. The ECB denied this, but the rumor has taken hold. When the Federal Reserve hinted it would stop buying new bonds in 2013, rate shot up, at least temporarily, in what was termed the taper tantrum. Shortly thereafter, the ECB expanded its bond-buying, and even though the ECB buys European bonds, the spill-over effect has helped keep US rates low the last three years.

As long as the rumor has legs, rates will remain under pressure. The situation is exacerbated by recent not-so-bad economic data worldwide. I’m afraid even a weak jobs report this Fri may not be enough to relieve the pressure. If you’re closing between now and the election, my vote favors locking.

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