Mortgage Rate Update, June 7, 2011

Mortgage rates will move upward today as investors await comments from Federal Reserve Chairman Ben Bernanke.  Poor economic growth, the end of Federal Reserve stimulus and uncertainty in the Euro-Zone produce dueling and counter-balancing forces for mortgage rates.  Chairman Bernanke’s comments late this afternoon will hopefully put each of these forces in to perspective.

Mortgage Rate Trend Direction:     Up
Economic Reports/Rate Impact:    No economic reports today
Key News:                                           Bernanke Speaks, China’s Comments on US Bonds

Summary
We have entered into a period of uncertainty about where the economy is headed over the mid-term.  In the short term we have strong evidence that economic growth will be weak.  Over the long term we have confidence that we will see sustainable economic growth. However over the period of the next year or two, what should we expect…slow growth or recession.  Comments from China have put upward pressure on mortgage rates this morning but Bernanke’s comments late in the day may cause rates to move back close to yesterday's levels.

Impact of economic reports
With no new data to consider today it will magnify the importance of Chairman Bernanke’s comments as he interprets the recent negative data.  There will be an auction of 3YR US Treasury securities this afternoon that could cause rates to move if the auction is weak or exceptionally strong.

Impact of international or political events
Analysts and traders are looking to Federal Reserve Chairman Bernanke to do two things: first, they would like his explanation of the recent slowdown in the economy along with his forecast going forward, and; second they would like a clear understanding of the Federal Reserve’s plan once it ends its quantitative easing stimulus program on June 30.

A Chinese financial minister made comments today questioning the wisdom on their continuing purchase of US government bonds.  If China was to cease or even curtail its purchases of US debt it would be devastating to the US economy and would push rates dramatically higher.  Most observers see these statements simply as posturing—as a way to put pressure on the US to take the legislative steps necessary to get its fiscal house in order.