Tag: interest rates

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

By G. Steven Bray

Mortgage rates continued their magical ride last week, and it looks like the ride may continue for a while. Fear of a weakening economy continues to fuel the ride.

We may get a little more insight into whether those fears are justified this week. First up is Fed Head Janet Yellen who testifies before Congress on Wed and Thurs. Markets are pricing-in less than a 50% chance of another Fed rate hike this year. That’s very different from the Fed’s own indications of steadily rising rates. While the Fed’s decisions don’t control mortgage rates, we assume they are based on the Fed’s opinion of the strength of the economy. If Yellen suggests the Fed will hit the pause button, that will speak volumes to markets.

The other interesting information this week is the retail sales report on Fri. Consumer spending, while not terribly strong during this recovery, has been strong enough to provide for mediocre growth. However, much of that spending has been for automobiles and health care. Higher auto sales have been driven by subprime auto lending, which hit a 10y high last fall. Obamacare has caused health outlays to surge. Markets are watching for more broad-based retail sales growth. The absence of it lends support to the narrative of a weakening economy.

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

By G. Steven Bray

Mortgage rates continue to please, dropping to their lowest levels in over 6 months last week. The drop came courtesy of the Bank of Japan, which surprised markets by introducing a negative interest rate policy on Fri. Interest rates worldwide improved immediately.

The next two weeks could determine whether the downward trend continues, but the outcome may be counterintuitive.

Markets are pricing about a 35% chance the Federal Reserve hikes short-term rates again at its Mar meeting. While Fed rate hikes don’t directly affect mortgage rates, they should be in response to the Fed’s perception of the strength of the economy. And a stronger economy typically leads to higher mortgage rates.

Overseas data so far this week continues to suggest a slowing global economy, but in the US the data is mixed. The jobs report on Fri caps a heavy week of US economic data. While last month’s jobs number was surprisingly large, 40% of the new jobs went to 16-to-19 year-olds. I think chances are this month’s report will be disappointing.

That should be good for mortgage rates. However, if it squashes the Fed’s lust for rate hikes, it just might stop our rally, at least temporarily. Fed Head Yellen testifies before Congress next week. If she suggests the Fed is going to hit the pause button, stock markets should rally. Some of that money that has been flowing into bonds and pushing rates down is likely to reverse direction. That doesn’t necessarily mean higher rates, but it does remove one source of demand for bonds.

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

By G. Steven Bray

Mortgage rates continue to be tied to oil prices and stocks. When they rise, rates rise. When they fall, rates fall. It’s not always that way, but this “flight to safety” trading has been active for the last few weeks.

As I’ve stated many times, interest rates are sensitive to expectations of inflation and growth. World equity and commodity markets are reacting to indications of slowing growth, and that has the punditry whispering recession. I read a wonderful quote the other day. “Did you know that the stock market has predicted 27 of the past 11 recessions?” I don’t know if a recession is imminent, but the fear is good for rates.

One other factor you may want to consider this week is the Federal Reserve meeting. This is the first meeting after it hiked short term rates in Dec. While no one expects the Fed to hike rates again this month, markets will be very interested in the post-meeting statement. The Fed previously indicated it would raise rates 4 times this year, but bond markets are only pricing in two rate hikes. Markets are watching to see if the recent stock and commodity market volatility will force more alignment between the two.

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

By G. Steven Bray

Interest rates are benefiting from the “flight to safety” trade. As equity and commodity markets crater, investors are seeking the safety of bonds, which pushes interest rates down.

The funny thing is the bond market seems to be a reluctant recipient of this largess. The S&P 500 is down 200 points since Dec, and oil is trading at prices not seen in over a decade. Yet, 10-year bond prices are stuck in the same range where they’ve traded for months, albeit at the lower end of that range. This suggests that if not for the collapse in other markets, interest rates would be rising.

I mention this to keep you cautious. While US economic data still paints a mixed picture, the sentiment seems to be that the economy is supposed to improve. (Otherwise the Fed wouldn’t have raised short term rates, right?) And an improving economy portends higher interest rates.

Frankly, it’s a messy picture right now with many factors at play. The headline number in last Fri’s job report was surprisingly strong, which pundits used support the rosy economic sentiment. However, look past that number, and we find weakness. 40% of the new jobs were to people in the lowest age brakcet (read low paying service jobs) and wage growth again was non-existent (read no inflation pressure). This week brings the Christmas retail sales report and record corporate bond issuance. This is likely to keep rates volatile and unpredictable.

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

By G. Steven Bray

Amazingly, mortgage rates ended 2015 about where they began the year despite the predictions from talking heads that rates would rise. As we start the new year, they’re making those predictions again. So will they be right this time?

Yes, the Federal Reserve did raise short-term rates in Dec, and chances are they’re hike them further at upcoming Fed meetings. But remember that mortgage rates are much more sensitive to expectations for inflation and economic growth than the Federal Funds Rate. Inflation still seems very tame, and growth appears to be flagging. In the medium term, I don’t see much incentive for rates to rise.

But let’s look at the short term. This is a busy week for the markets. The first day back from vacation brought a big sell-off in the equity markets over concerns about global growth, but that may be temporary. I suspect US bond markets are more interested in Wed’s Fed meeting minutes and Fri’s jobs report. The Fed minutes may provide insight into the Fed’s plans for future rate hikes. Fed governors seem to be saying the hikes will happen more quickly than markets are expecting. The jobs report may tell us whether inflation pressures are building. Wage inflation has been almost non-existent during this recovery. Any change to that trend will catch the attention of markets. Both results would be negative for interest rates.

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

By G. Steven Bray

The Federal Reserve meets this week, and probably the best telegraphed Fed rate hike in history will come to pass. However, the market reaction could be a big yawn. In fact, the Fed NOT raising short terms rates this week would be more likely to cause market havoc.

Markets have priced in an expected quarter point rise in the Federal Funds Rate, the tool the Fed uses to influence short term interest rates. The unknown at this point is what comes next. Will the Fed telegraph its intention to raise rates further, and if so, how quickly will that occur? Will the Fed acknowledge a softening global economic picture and the potential effects of higher US interest rates?

It’s a Goldilocks situation except no one is quite sure of the correct temperature of the porridge. If you’re floating your mortgage rate, this is a high-risk week. Rate volatility is likely, but absolute movement is hard to predict. Markets will taste and re-taste the Fed’s porridge on Wed. If the Fed gets it just right, rates could stay right where they are, which is a pretty nice place to be.

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

By G. Steven Bray

Absent something totally unexpected, like a financial crisis that roils the world economy, it looks like the Federal Reserve will raise short term interest rates in Dec. Analysts expect a quarter percent increase, and bond markets have pretty much priced that amount into the yield on Treasury bonds.

That’s the backdrop for this week’s big economic events, specifically the jobs report on Fri and the European Central Bank meeting on Thurs. Markets expect another good jobs report, and I think only a contracting job market would sway the Fed to reconsider raising rates. Markets expect the ECB to announce additional measures to stimulate the European economies. I expect this will have little effect on US rates, but it’s interesting that the current policies of the ECB and the Fed are moving in opposite directions.

Mortgage rates could rise a little in the coming weeks as markets continue to react to expected Fed actions. However, markets soon will start looking beyond Dec’s rate hike, and future rate hikes depend on the growth prospects for the economy. Thus, it’s quite possible rates level off or even fall a little in the medium term unless economic data shows a new spark.

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

By G. Steven Bray

I expressed concern last week that the Federal Reserve would hint at a December rate hike after its Oct meeting. In the post-meeting statement, the Fed asked, “Are we clear?” The markets responded, “Crystal.”

The Fed didn’t just lob a shot across the bow. It went for shock and awe. It seems the Fed had decided to raise rates in Sep but got scared due to the Chinese stock market collapse. Now that the crisis has receded, the Fed seems determined that it will not waver again. What credibility it has left is on the line. I don’t think economic data will matter much over the next month. The Fed is going to raise short term interest rates, and markets are pricing in that probable reality.

For the near term, mortgage rates are off their recent lows and probably won’t test that range again anytime soon. Longer term, you have to remember mortgage rates are more sensitive to expectations for inflation and economic growth. Inflation remains almost non-existent, and world economies are slowing. If economic malaise returns to the US, mortgage rates could revisit all-time lows next year.

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

By G. Steven Bray

Steady as she goes. Last week was fairly quiet in terms of economic data, and interest rates stuck to their current range. This week could bring a little more excitement.

The Federal Reserve meets Tues and Wed. Almost no one expects the Fed to raise short term rates, but that doesn’t mean the Fed can’t launch some fireworks. The focus will be on the Fed’s post-meeting statement. Really, I only see downside risk for interest rates. If the statement suggests the Fed wants to raise rates in Dec or hints that the global economic picture is improving, I suspect rates will edge up. I think the Fed would have to paint a gloomy economic picture for rates to head lower, and I don’t think that’s likely.

Thurs, the government releases the 3rd quarter GDP numbers. While this is backward looking data, lessening its impact, rates may respond if the headline number differs greatly from the downwardly-revised estimate. More important will be if markets can glean some expectations for the 4th quarter and the Christimas shopping season.

Finally, we have the ongoing budget and debt ceiling talks between Congress and the President. If the talks collapse, rates could improve because of the potential impact on the economy, but volatility and uncertainty could negate any improvements.

If this week doesn’t bring some excitement, next week is a jobs report week. The last two jobs numbers have been disappointing to say the least. A third lousy report could push rate hike expectations back until next summer. We’ll talk about that more next week.

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

By G. Steven Bray

Mortgage rates seem very content with their current lot in life. They’ve been hanging out in the same range, around 4% for a 30-year fixed mortgage, for the last couple months, and that really doesn’t seem likely to change soon.

The next big economic event that could move rates is the Federal Reserve meeting next week. The Fed indicated at its Sep meeting that it could raise short term rates in Oct, but pretty much no one believes that. US and global economic data has deteriorated since the meeting, and the Fed hardly wants to risk being blamed for the next recession.

Even if the Fed doesn’t raise rates, its post meeting statement could cause a stir. Speeches by the Fed governors since Sep have seemed contradictory. In the unlikely event the statement clarifies the Fed’s position on the timing of rate increases, I suspect rates will move. I think the risk is greater that rates will move up than down. Markets seem disinclined to push rates lower at this time, so even if the Fed takes rate hikes off the table for months, rates may remain in their current range. Alternatively, if the statement stresses the Fed’s determination to raise rates this year, look for rates to jump, at least temporarily.