This week was another good week for mortgage interest rates. Rates today are just under 1/8 of a percent better than they were on Monday. Ever since the Federal Reserve (FED) announced the 3rd round of Quantitative easing we have seen rates improving.
Yesterday was the first day we saw rates increase in an 8 business days span, which is the longest span rates have declined since December 2008. When the FED announced that the new easing program was going to be focused on mortgage backed securities it caused a shift in investors mentality. US Treasuries were always the go to choice for investors when they were scared because it is considered the safest investment out there. Now that the FED is heavily buying mortgage backed securities investors are starting to see them as safe and they offer a much higher rate of return than Treasury bonds. It is because of this shift in investor mentality we have seen such a long and strong rally in the mortgage bond market.
Another event fueling the mortgage bond rally is that Europe’s solution to solving their debt problem seems to be falling apart. This week we saw more riots in Greece and it is looking more likely they will exit the European Union. Also Spain seems to be unwilling to accept the conditions that would come with the financial support from the European Central Bank (ECB).The reason all this affects us is that when Europe is in crisis mode investors get scarred and money flows into the mortgage bond and US Treasury markets.
As mentioned above we did see sell off yesterday in the mortgage bond market, but that is to be expected every now and then as the market never moves in a straight line. Both the technical and fundamental data looks good for rates moving into next week.
Tags: Europe debt crisis, Greece leaving EU, market preview, mortgage rates outlook, Quantitative easing, Spanish bailout