Tag: interest rates

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By G. Steven Bray

It seems market sentiment has changed, which could be bad news for interest rates in the near term.

The quick jump in interest rates over the past few days was in reaction to investors’ fears that Central Bank printing presses might shut down. The trouble started last Thurs after the European Central Bank meeting. At a press conference, its president suggested through omission the Bank might stop inflating its balance sheet next year. Alarm bells sounded. No more money raining down from heaven. And the selling began.

Stocks and bonds have been selling off ever since as markets adjust to the idea that easy money might not be a permanent condition. Of course, markets are ignoring that the Fed continues to reinvest billions of dollars into Treasury and mortgage bonds, that Europe and Japan have official negative interest rate policies, and on and on.

So, rates are up a little. They still haven’t broken out of the range they’ve occupied all year. In fact, we’re in the middle of it. To break the range, I suspect we have to see stronger US economic performance. To that end, we have two significant data points this week: retail sales and inflation. Of the two, I think inflation could have the larger impact if the report shows a sizable increase. One reason the Fed has been reluctant to raise short term rates is the near absence of generalized inflation. If inflation should start to bubble, look for the Fed to try to get in front of it with a series of rate hikes. While Fed rates don’t directly affect mortgage rates, its change in policy stance will reinforce the market’s change in sentiment.

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

By G. Steven Bray

Last Fri’s jobs report was supposed to be a defining event. Solid job gains were supposed to give the Fed the green light to raise short-term interest rates again in a couple weeks. I guess someone forgot to tell the employers. Instead, we got a mediocre jobs report and an excuse for the Fed to equivocate some more.

The actual jobs created were 151k. By itself, even this mediocre report could have given the Fed cover for raising rates given that Fed governor Lockhart said 150k would be good enough. However, the report was bookended by important reads on, first, manufacturing and, today, the service sector of the economy. Both reports were much weaker than expected and, I suspect, put a rate hike back on hold.

So, where does that leave us? It looks like we’ll be riding the range a while longer. The European Central Bank meets this week, but I think it’s unlikely to stir markets much. The next significant event is the Fed meeting in two weeks, and absent something unexpected, I expect rates will remain in a holding pattern until we get closer to the meeting.

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

By G. Steven Bray

The Fed spoke last Fri, and it seems like no one cared. Fed Head Yellen said the case for raising short term interest rates is stronger. That was followed by two other Fed officials who said the case was compelling, and markets should be prepared for a Sep rate hike. The market reaction was quick and negative, and interest rates moved higher. That was predictable. However, yesterday, rates slipped back into that familiar range of the last couple months. That leaves me scratching my head.

It’s possible markets already have priced in a Sep rate hike. The Fed has been hinting at it for a while, and US economic data, especially consumer data, has been positive the last couple months. It’s possible, but I doubt it.

It’s possible markets believed Yellen and friends didn’t break any new ground, and they’re waiting for this week’s jobs report to give them direction. Fed officials said a rate hike depends on continued positive economic data. But I suggest it would take a pretty disappointing jobs report to sway the Fed. Several Fed officials let slip that 150k jobs would be plenty. The market consensus is last month produced 180k jobs.

Finally, it’s possible that month-end forces are keeping a lid on rates for the moment. If that’s true, rates could rise heading into the end of the week.

Regardless, I would suggest a defensive posture at this point. Rates still are close to their all-time lows. If you choose to float your rate, choose a bail-out point when you’ll lock. When rates start moving up, they may not head down again for a while.

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

By G. Steven Bray

Mortgage rates have moved from riding the range to a long, slow cattle drive. Rates barely budged again last week, and this week is shaping up to be similar – at least until Friday.

Federal Reserve governors are meeting this week in Jackson Hole, WY for a symposium on monetary policy. The symposium includes not just the Fed, but also finance ministers, academics, and financial market participants from around the world. Fri is important in that Fed head Yellen is scheduled to speak. In the past, Fed chairmen have used the speech to provide a less cloudy view of the Fed’s policy intentions. Many market analysts are expecting Yellen to signal whether the Fed will raise short-term rates at its Sep meeting.

Personally, I’m not sure that will happen. Given the kind of leadership she’s demonstrated, I think it’s at least as likely that she’ll hedge – “a rate hike is data dependent” and the like.

If her speech is more hawkish suggesting a Sep rate hike is on the table, I expect mortgage rates will bounce higher. While short-term rates, the ones the Fed controls, don’t directly affect mortgage rates, the knee-jerk market movement will push all rates higher, at least temporarily. I say temporarily because longer term rates like mortgage rates are more interested in the prospects for inflation and economic growth. The direction of both of those still is in doubt.

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

By G. Steven Bray

Last Friday’s economic data was scary enough to push rates down to 1-month lows, but that’s just the bottom of the same range they been riding for the last few months. The problem is the economic data is conflicting. Jobs and housing to a large degree seem healthy, but spending and investment are anemic, and inflation is quite low despite all the Fed’s stimulus actions. In this environment, rates lack motivation to move one way or the other. That said, we could be just one big data point away from a move that escapes the range.

That seems unlikely this week. The most significant economic event is the release of the Fed meeting minutes. I don’t expect the minutes will contain any surprises, but it’s always possible market analysts will parse some phrase to suggest the Fed’s future course of action.

At some point the range will be broken, even if only temporarily. Given our closeness to all-time lows, and given the strength of the job market, a break higher seems more likely than a break lower. Locking when rates are at the bottom of the current range is a logical choice. If you choose to float, choose a bail-out point. If rates start to move up, you could lose ground quickly.

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

By G. Steven Bray

Last week’s jobs report was another strong one, and mortgage rates responded as expected – quickly rising about an eighth of a point. But even with the rise, we’re still in the same range we’ve been in for the past several months, and rates have leveled out again to start the week.

The question now is will the jobs report give the Federal Reserve cover to start raising interest rates again at its Sep meeting. Interestingly, markets don’t think so. They might be right given that the Fed should be hesitant to do anything that could be perceived as influencing the election. Moreover, the economy still doesn’t seem to be running on all cylinders, and the Fed has to consider the backdrop of a weak global economy.

This week looks to be fairly quiet for rates. Not only are a lot of traders on holiday, but the only significant economic data is Fri’s retail sales report. The biggest source of rate pressure this week may be “supply.” The markets expect to see a lot of corporate bond issuance this week, and the Treasury has 3 scheduled auctions. It’s Econ 101. When you have excess bond supply, rates tend to rise.

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

By G. Steven Bray

Just as markets were getting comfortable with the idea of a stronger US economy, last week’s 2nd quarter GDP report was a bucket of cold water. The economy grew at an anemic 1% for the first half of this year. In response, bond markets rallied and mortgage rates dropped.

Once again, we’re within reach of record lows. Whether we challenge them in the near term probably depends on this week’s jobs report. Remember that last month’s report was really strong and started a conversation that maybe the economy was heading up. A stronger than expected inflation report provided additional cover for statements from Fed governors that further rate hikes this year seem appropriate.

Another strong jobs report this week won’t guarantee a rate hike, but it’s hard to argue that a stronger job market won’t result in higher growth in the second half of this year. Stronger second half growth is probably just what the Fed needs to start raising short-term rates again, and that will put pressure on mortgage rates. A weaker report could send rates to new record lows.

For now, we’re likely to see the usual push and pull of market forces, like today’s huge corporate bond issue that pushed rates up a little, but absent something extraordinary, rates are likely to hang in the current range until Friday’s jobs report.

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

By G. Steven Bray

Brexit, the British vote to exit the European Union, has done wonders for US interest rates, which are at record lows. While stock markets shook off their initial panicky response to the vote, bond markets seem to have their eyes on the longer term. While I think it’s unlikely the Brexit will result in economic calamity, it has introduced significant uncertainty. We haven’t been down this road before, and calamity is a possible outcome, even if an unlikely one. Investors account for this risk by buying long-term bonds, which has pushed Treasury rates to historic lows.

How should you respond? Mortgage rates are now within a fraction of their all-time lows, and unlike previous visits to this range, I think this time we may hang out here a while. I really don’t see any strong motivation for rates to rise. I think Fed rate hikes are off the table for now, and economic data continues to be equivocal. Mortgage rates haven’t caught up to the rapid drop in Treasury rates, so if we can hold this range, mortgage rates should leak lower.

But don’t hear that as a solid recommendation to float your rate. Mortgage rates have dropped roughly a quarter-point in a week, and investors do like to book profits from time to time. A short-term bounce higher isn’t out of the question, and an unexpected shock is always a possibility. If you want to roll the dice for lower rates, I suggest you set a circuit breaker – a rate you don’t want to lose. If rates rise to that level, trip the circuit and lock.

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

By G. Steven Bray

Markets have a laser focus on whether Great Britain will vote tomorrow to leave the European Union. Right now, the vote is too close to call, and markets seem to be holding their breath. If you believe the talking heads, a vote to leave will result in economic calamity. What rubbish. I think this is a case of hype before facts. When people like George Soros start predicting a currency collapse, I tune out. It’s hard to believe people who could make money by influencing the vote.

In the longer term it probably won’t matter much what Brits decide. If they vote to leave, it will take years to disentangle Great Britain from the EU. In that time, other economic edifices will arise to address any fallout.

But, it’s the short term that will be interesting. If Brits vote to leave, expect rates to fall. If they vote to remain, expect rates to rise. I think neither effect will be lasting, but if you’re closing in the next few weeks, it behooves you to make a reasoned decision about your rate lock. You can justify locking or floating, but it’s very likely mortgage rates Fri morning will be quite different from Thurs afternoon.

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

By G. Steven Bray

Mortgage rates have continued to improve mainly due to global growth concerns. The poster child for that concern right now is the potential exit of Great Britain from the European Union or “Brexit.” Brits vote next week, and the “leave” side is leading in the polls.

I think the threat to the global economy of a Brexit is fairly minor in the short term. Markets are probably overreacting a bit to the notion that if Great Britain exits the EU, others would follow, and the EU could collapse. That scenario would take years to develop.

In our short term, we have a Fed meeting this week. The Fed also is eyeing the Brexit vote, and it’s highly likely the Fed will leave interest rates at current levels tomorrow. However, Fed governors continue to indicate they’re itching to hike rates again and soon. Assuming the effects of the Brexit vote are minimal, look for the Fed to start talking rate hikes again.

So, that leaves us with slight downward pressure on rates until the Brexit vote (or until the polls change). Locking or floating your rate is a reasonable decision at this point, but keep in mind that there is less market inertia for rates to rise than for rates to fall. In particular, if the Brexit vote fails, rates could snap upwards rather quickly.