Bulls & Blogs

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

You can tell the European Central Bank is run by bureaucrats. Markets were expecting a straightforward answer on whether it will start to taper its asset purchases. Instead, we got a “not ready to tell you yet.” The market reaction was a muted sigh. On the one hand, it’s positive the ECB hasn’t decided to start tapering. However, punting the decision to another day just prolongs the anxiety.

It sounds like that other day will be the ECB meeting on Dec 8th at which time the head of the ECB has promised to let us know whether it has decided to continue or taper asset purchases. Interestingly, the Fed meets the week after that. It’s a good bet that if the ECB starts to taper, the Fed will raise short-term rates.

But that’s in the future, and remember that short term rates don’t dictate the medium-term direction of mortgage rates. What are rates going to do between now and then? Absent some extraordinary stimulus, I don’t think much. I think the market has a slight bias for higher rates at this time, but I bet 30y rates will stay well under 4% between now and the meetings.

Even so, upcoming events can cause volatility. The biggest economic news this week probably comes Fri with the Durable Goods and 3rd quarter GDP reports. A large departure from the expected 2.5%, plow horse growth could spook investors. Next week, the Fed meets. While no one expects it to change policy at this meeting because of its proximity to the election, the post-meeting statement could be interesting. The Fed used the statement at last year’s next to last meeting basically to announce it was raising rates in Dec. And, of course, the election is the following week, and there’s no telling how investors will react to the results.

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Interest rates continued their rise last week reaching the highest levels in 4 months. They’ve plateaued so far this week, but don’t assume the market has lost its steam. As I mentioned last week, I think concern about what the European Central Bank will say this week is powering this run.

The ECB will announce its policy decisions on Thurs. The world’s central banks have been fueling an easy money bender for the last few years. Rumors that the ECB was preparing to taper its asset purchase program sobered up markets in a hurry a couple weeks ago.

When the Fed began to taper its quantitative easing in 2013, mortgage rates moved up more than 1% and fairly quickly. It took a couple years before rates began to approach the same levels as before the tapering announcement. Using history as a guide, the threat for higher rates is definitely real. While actions of the ECB don’t directly affect mortgage rates, the assets they purchase are fungible, and US bonds will feel an impact.

With the scary stuff out of the way, let’s be clear that ECB tapering is not a foregone conclusion. The European economy is still weak, and the Brexit is still a huge unknown. If you’re willing to roll the dice, it’s quite possible the ECB will announce an extension of its program, which probably would push mortgage rates back to the levels seen earlier this month.

We have one more thing working for us. I suggested last week that you keep an eye on inflation reports. The two most recent readings were weaker than expected, which takes some of the pressure off rates.

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

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.