Tag: interest rates

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By G. Steven Bray

Interest rates have pulled back a little from their recent highs. While that’s welcome relief after the post-election rise, it begs the question are rates going to continue rallying lower, or are they merely catching their breath before pushing even higher?

One thing seems clear to me. Markets were caught up in somewhat irrational exuberance after the election, which led to the 3/4 point jump in mortgage rates. Sure a Trump presidency is likely to be more business friendly, and sure an expanding economy could lead to higher interest rates. But, seriously, we know very little about the policies his administration will pursue, and many of those that have been mentioned, such as infrastructure spending and tariffs, may take years to develop.

I think the recent pullback is an acknowledgement of that, and it leaves markets struggling to find direction. The world still is a scary place, and the Trump administration is still a bit of an enigma. Given this, rates can get pushed around from day to day based on headlines and trade-flows. Overall, I think it’s more likely we’ll see lower rates than for rates to start rising again; however, I doubt it will be a straight line. If you want to bet on lower rates, pick a bail out point when you’ll lock if the market starts to move against you.

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

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.

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

By G. Steven Bray

Mortgage rates are finally catching a break this week despite recent positive economic data. The improvement also comes despite the prevailing wisdom in the popular press that the election of Trump has somehow rubbed the magic inflation bottle, and prices and rates are going to roar higher in coming months.

I think the sell-off in the bond market and resultant increase in rates was a bit overdone, and I suspect the numerous uncertainties that remain in the world will keep a lid on US rates in the new year.

One of those uncertainties, a constitutional referendum in Italy, will be resolved this weekend. It appears now that the referendum will fail, and talking heads have opined that this could lead to Italy leaving the European Union. Probably not, but a no-vote could lead to another silly season like we had after the Brexit vote when rates dropped nicely.

In the US, we have a jobs report this Fri. I don’t think the jobs number will matter much unless it really misses expectations. What will interest me more is the wage inflation number. Wage inflation shot up a couple months ago. If it bests expectations again, it will give the inflation genie more power.

I think floating your rate this week is reasonable, but it’s also risky. Prevailing sentiment still seems to favor higher rates even if fundamentals don’t support them. Choose a bail-out point at which you’ll lock if rates start to zip higher again.

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

By G. Steven Bray

What a difference a week makes. Before the election, market analysts were virtually unanimous that a Trump victory would scare markets, resulting in temporarily lower rates. The spookiness lasted less than 12 hours. By the time the nation awoke Wed morning, markets had reversed their Tues night collapse. Market momentum kept bond buyers sidelined and pushed rates up.

If you search for reasons for the sell-off, you’ll probably find references to Trump’s policies igniting inflation. I’m calling BS. While that could be an outcome, the assumptions some analysts made – that he’ll tear up NAFTA, impose tariffs on foreign goods, and shut off immigration – are overblown and even if anything like them comes to pass, are many months, if not years, in the future. Tax cuts and infrastructure spending could boost the economy, but we don’t even have concrete proposals yet.

I suspect the reaction had more to do with the elimination of election uncertainty combined with concern that the European Central Bank will start closing the money spigot in Dec. Market sentiment started edging towards higher rates a couple months ago. The election just gave bond sellers a push, especially if they needed funds to jump on the stock market rally.

So, what do you do if you didn’t lock your rate before the election? I suspect we’re doing to be stuck with these higher rates for a while. That said, a big market move like this one increases the chances of a temporary reversal. Investors will see bonds as cheap and start buying, which will push rates down. However, such a reversal is not a certain outcome. I suggest you pick you maximum pain point, and if rates keep rising, lock if they reach that point.

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

By G. Steven Bray

Rates have one thing on their mind: today’s presidential election results. Last week’s jobs report came and went with little more than a blink.

Financial markets are happiest when the world is calm and predictable, and this election season has offered little of either. That said, markets are likely to react differently based on the who wins the presidency.

Hillary Clinton represents the status quo. Markets think they know what they’re going to get. It may not be to their liking or supportive of robust growth, for example higher taxes and greater regulation. However, it is predictable, and investors are likely to react with a relief rally that will lift stock prices and interest rates.

Donald Trump represents change and based on his rhetoric potentially dramatic change. Investors are likely to react cautiously, buying gold and sovereign debt at the expense on stocks. The result would be temporarily lower interest rates.

Eventually, markets may focus on last week’s jobs report, which provided some interesting data. We’ll take a look at that later in the week.

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

As I said last week, it looks like market sentiment has swung towards rising interest rates. Despite last week’s mediocre jobs report, rates have risen each of the last 9 days. Fortunately, the pace of increase has been fairly moderate, but so far, the market shows no signs of a reversal.

It seems the source for our discomfort continues to be the private musings of the world’s central bankers. Will they continue to pump money into the economy, or are they finally worried about the distortions that’s causing? Rumors that the European Central Bank might slow down the printing press started this market reaction a couple weeks ago. The good news is that the ECB meets next week, and it could put the rumor to rest. That could stabilize rates, but I doubt the market will reverse unless the ECB does something truly unexpected.

One other area of concern is inflation. Inflation has been almost non-existent for the last few years, but given the statistical quirks of the measurement and given recently increasing energy prices, inflation may tick up a bit in the next few economic reports. While I’m not sure that’s really significant for the economy, it could give the Federal Reserve cover to hike short term interest rates. Personally, I think the Fed’s itching to raise rates if for no other reason than to give it some ammunition in case the economy turns sour. I think the hike will happen in Dec, but between now and then, rates will be under pressure in anticipation. The funny thing is, though, a Fed hike in Dec could very well lead to lower mortgage rates early next year.

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.

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

By G. Steven Bray

As expected, the Federal Reserve didn’t change short term interest rates last week, but somewhat surprisingly, interest rates fell a little. Maybe markets were more nervous than we thought about the Fed meeting. Fed head Yellen’s comments at the post-meeting news conference didn’t hurt. She seemed to make it clear most Fed members are still reluctant to raise rates. However, Yellen did signal that a hike before the end of the year, probably in Dec, is a real possibility.

The rate drop surprised me because so many so-called market experts are predicting higher rates. Despite those predictions, investors bought bonds, pushing rates down.

So, what does that do for market momentum? For now, it looks like it pretty much sapped it. While rates did drop a little, they simply moved to the lower end of the recent range, and they’re looking comfortable again.

A couple things on the near horizon could disrupt the tranquility. The first is next week’s jobs report. A report that misses expectations either way could give rates a nudge. The second is the resurgence of inflation, especially wage inflation. I think recent economic reports have been equivocal. A report that shows a definite rise could move rates up quickly.