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By G. Steven Bray
Tragedy can lead to uncertainty, and uncertainty is good for lower interest rates. The outbreak of the coronavirus in China has unsettled global markets, and investors are running to the safety of Treasury bonds. Investors are concerned the virus will seriously impact global growth. One analyst already is predicting the virus will shave 0.4% off global GDP, and the outbreak seems to be growing.
The effect on stock and Treasury bond prices has been much more significant than the effect on mortgage rates. Even so, mortgage rates are the lowest they’ve been in over 3 years.
If you’ve been watching for low interest rates, don’t procrastinate. As quickly as these rates have appeared they could evaporate. If the number of new cases of the virus starts to decline, markets may conclude the effects will be limited, and rates will snap back.
In that case, we’re back to watching economic data and events, which ramp up this week. The Federal Reserve meets today and tomorrow. While no one expects the Fed to change its current policy – no rate hikes or cuts until inflation or unemployment change significantly – investors love to parse the post-meeting statements for hidden meanings.
Next week we get the ISM reports and the Jan jobs report. The service sector of the economy has remained strong despite the trade disputes, but pundits have been predicting its deterioration for many months. Should the ISM report hint a downturn, rates could improve further. Likewise, should the jobs report deviate from its current trend, that could gets rates moving.
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