Bond Market and Interest Rate Update

Bonds rallied and mortgage rates improved a bit in the aftermath of the election, responding positively to the Democratic sweep.

Why?

Primarily because of the expected return to fiscal responsibility, and barring that, at least based on the notion of a spending gridlock arising from those opposing forces of a Republican White House and a Democratically controlled Congress.

This morning’s Michigan University Consumer Sentiment index showed a small but unexpected drop in consumer confidence, foreshadowing a possible slowing of consumer spending. That, along with a $13 billion auction of the 10-year U.S. Treasury notes, 34% of which was gobbled up by foreign banks gave bonds further support and help prolong this weeks rally.

Last week, the pendulum of economic news that alternately suggests inflation or recession swung to the inflation side. Unemployment fell to an all-time low of 4.4%, while labor costs rose and productivity fell. That batch of news scared the bond market a bit and pushed mortgage rates a little higher.

Mortgage Rates. Conventional 30 year fixed rates were just under 6% this week with one point, 6.25% with zero points. The 3/1, 5/1, 7/1 and 10/1 ARMs offer no help with payments. Due to the flat yield curve in bonds, those rates are about the same. I’m advising my clients to take a 30 year fixed. Remember, the jumbo 30 year is about 1/4 point higher, and the interest-only version of any loan is just slightly higher than its amortized counterpart. All in all, rates are pretty stable and show no clear trend either direction.

Share This