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By G. Steven Bray
Mortgage rates have finally settled down a little from their post-election romp. We’re still seeing volatility with big changes from day-to-day, but overall, the market seems to be waiting for the next big thing.
That thing may happen tomorrow. Before the election, we fretted about the European Central Bank’s decision on whether it will begin to taper asset purchases. It promised to let us know at its Dec 8th meeting. Last week, a leaked report suggested the decision had been made – tapering would start. But, then the Italians resoundingly defeated a measure supported by the financial elite that would have given the prime minister more power to implement austerity measures. Now, the press is talking about how long Italy will remain in the EU.
If the ECB starts to taper, the decision is likely to drive up bond rates, and markets seemed to price-in that decision earlier this month. However, if the ECB postpones the decision again, we’ll probably see rates fall, maybe as much as a quarter-point. Markets this week seem to be hedging towards the latter outcome with rates improving slightly.
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