Mortgage Rate Update, June 13, 2011

Mortgage rates are in a period of extreme volatility.  The fact is no one really knows what the impact of the end of the Federal Reserve’s program of purchasing US Treasuries (QE-Quantitative Easing)will mean when it occurs on June 30. Combined with clear slowing in our economy will rates hold firm or head higher as demand for bonds suffer?

Mortgage Rate Trend Direction:     Up
Economic Reports/Rate Impact:    No economic reports issued today
Key News:                                           Banks to Stop Buying US Treasuries?, Dr. Doom’s Comments

Summary
Mortgage rates are going to be volatile over the next few weeks.  Fear of the unknown is the reason.  No one knows what the impact of the end of QE2 will bring but professional traders and portfolio managers must try to guess in order to serve their client’s and their own best interests.  With no new data today I expect the fear of the unknown to force rates higher.

Impact of economic reports
Tomorrow we will see the Producer Price Index which is a measure of inflation in the manufacturing sector.  Recent trends have shown a steady rise in input costs for manufacturers.  Any further indication of inflation could push rates higher.

Also tomorrow is the hugely important retail sales report.  Recent data suggest that the spending habits of American Consumers have modified with the increased costs for food and fuel, yet overall spending has held up.  If the sales figures tomorrow are weak then higher rates would be expected.

Impact of international or political events
In a story that is connected to the US Congressional debate over the debt ceiling, a “major bank chief” indicates that US based banks are planning to curtail their use of US Treasury securities in August due to the risk of US default.  The absence of such major buyers of US debt would cause interest rates to rise.

Dr. Nuriel Roubini whose pessimistic forecasts have lead business journalists to tag him with the moniker “Dr Doom” is at it again.  Dr. Roubini believes stated:

“You have the problems of rising oil prices, of [a] weak labor market, of housing double dipping, the fiscal problem in the state and local government, the facts of the federal deficit problem,” he said. “All these things imply that economic weakness could persist in the second half of the year.”

Dr. Roubini was explaining why he believes QE3 is possible by the end of 2011.  If another round of quantitative easing did emerge, it would help to keep rates down.