Posts Tagged ‘Quantitative easing’

Market recap for week ending 7/19/2013

Posted on: July 19th, 2013 by Fred Bohman No Comments

This week’s big event was the Federal Reserve’s (FED) President Ben Bernanke’s biannual testimony in front of Congress and the Senate. The reason this is so important is that the FED has been keeping interest rates low in order to stimulate the economy. The Fed has been doing this by spending 40 billion dollars a month buying mortgage backed securities in a program called Quantitative Easing (QE). Bernanke’s testimony was centered on whether the FED will continue QE at its present levels or if they will start winding it down.

As you might recall over the last few week’s interest rates have been very volatile making big swings up and down. This was all caused by remarks made by Bernanke and other Fed members about when QE will start winding down. Our financial markets during the last few weeks have seen trillions of dollars disappear and reappear based on these comments and rumors surrounding them.

In my opinion Bernanke did the right thing in his testimony this week. Instead of trying to set a time frame as has in the past he said the future of the QE program will depend on how our economy is doing. If the economy appears strong over the next few months then they will begin tapering down QE, and if the economy recovery slows or stops then they will continue with the QE program. This returns interest rates and our financial markets to reacting to actual financial news rather than comments and rumors.

Looking forward the most important upcoming economic report is the July employment figures that are released two weeks from today.

Market recap for week ending 02/22/2013

Posted on: February 22nd, 2013 by Fred Bohman No Comments

At the time I am writing this, mortgage interest rates are less than 1/8th lower than they were last Friday.

Both the 10 year Treasury bond and mortgage bonds continue to be contained in a narrow range. With the Federal Reserve(FED) still committed to buying large quantities of bonds through their quantitative easing program rates have not been able to increase much. On the flip side the string of positive economic news we have seen lately has kept rates from dropping.

Earlier today St Louis Fed President Bullard was on CNBC telling investors not to worry, and that the FED is not stopping their quantitative easing program (QE) any time soon. His comments were in response to the release of the January FED meeting minutes which showed discussion on how to wind down QE when the time comes. Any time there is discussion of slowing or stopping QE investors tend to get nervous, but after Bullard’s comments market volatility died down.

The $85B of mandatory spending cuts is coming up on next Friday and we have not heard much from either side in Washington on how to deal with it. Surprisingly the market does not seem too concerned with it, either because investors believe it will be avoided last minute or that the impact of the spending cuts will not have a large negative impact on the economy. I would expect to see increase volatility next week as we lead up to the dead line. I believe the only way we will see a drop in rates at this point is if we see a large correction in the stock market which is currently overbought.

Market recap for week ending 01/25/2013

Posted on: January 25th, 2013 by Fred Bohman No Comments

the time I am writing this mortgage interest rates are almost unchanged from last Friday, although we might see a re-price for the worse this afternoon.

Yesterday afternoon and this morning we saw a big sell off in the mortgage bond market. The main fuel behind this sell off was optimism in Europe. Part of the reason rates have been so low lately is that Europe has been struggling with their debt problem. Fears that some countries in Europe might default on their debt has caused investors to pursue safer US investments such as mortgage bonds. Today it was announced that 278 European financial institutions will return 137.2B euros for early repayment of their emergency loans from the EU. Economist had predicted that only 84B euros would be paid back early. The fact that the European banks are able to pay back the money they borrowed early is a sign that the debt crisis is moving in the right direction, but many economists are warning that is far from over.

Next week the Federal Reserve Board (FED) will meet to discuss Fiscal policy. Investors will be monitoring meetings closely as last month’s meeting minutes shocked the market as they indicated the FED had discussed stopping quantitative easing (QE). QE is the practice of buying mortgage bonds and treasuries to artificially deflate interest rates. I don’t believe we will see QE come to an end any time soon, but at some point it will have to and any discussion of it by the FED tends to spook investors.

Market recap for week ending 01/11/2013

Posted on: January 11th, 2013 by Fred Bohman No Comments

At the time I am writing this mortgage interest rates are almost 1/8th of a percent lower than they were last Friday.

This week kicked off earning season for US public companies. On Tuesday after the market closed companies started reporting their Q4 earnings. Reporting was mixed with some companies beating estimates and some falling short.

Congress is out until next week so this week was mainly quiet. When they return next week they will start the debate on debt ceiling which needs to be resolved by early March in order to keep the Government form running out of money. Once again the two parties are far off on how to resolve the problem and will cause market volatility until resolved.

Today we saw a small spike in rates which was caused by some of the Federal Reserve (FED) members speaking their mind on quantitative easing (QE). Some FED members issued concerns that continued QE will causes issues down the road. The FED is not going to stop QE anytime soon but any talk about stopping it tends to spook investors.

Market recap for week ending 1/04/2012

Posted on: January 4th, 2013 by Fred Bohman No Comments

At the time I am writing this mortgage interest rates are almost 1/4th of a percent higher than they were last Friday.

This was a short week again as Tuesday was New Year’s Day. Our leaders in Washington waited till the last possible minute, but were able to come to an agreement to avoid going over the Fiscal Cliff and taxes increasing for a majority of Americans.  Unfortunately the deal failed to deal with many other import issues that were on the table such as spending cuts and entitlement reform.  These issues will have to be dealt with later this year. Rates increased slightly when the deal was announced, but not as much as many expected since the deal failed to address many important issues.

Yesterday the minutes of the Federal Reserve’s(FED) last meeting was released and rocked the market. The minutes showed that there is disagreement among the FED members on when to stop quantitative easing (QE). QE is the process of artificially lowering interest rates by buying long term securities such as mortgage bonds. Most investors thought the FED would continue QE into mid-2014, but the minutes showed that some members wanted to stop at the end of 2013. Interest rates saw a big spike on the news.

Next on the table in Washington is the debt ceiling. You may remember the debt ceiling debates from last year, well the same problem is back again. Our country has once again run out of money and we are running on emergency funds. The debt ceiling sets a maximum amount of debt that we as a country allow ourselves to borrow and we have reached that limit. We can no longer borrow more money to continue spending it until the debt ceiling has been raised or we pay down some of our debt.  Since our government is currently spending a lot more than it takes in, paying down the debt is not an option. Current estimates are that the government will be completely out of money in early March unless something is done. Once again the 2 parties leading our country are disagreeing on how to solve the problem. We can expect a great deal of uncertainty and market volatility leading up to the dead line.

 

Market recap for week ending 12/14/2012

Posted on: December 14th, 2012 by Fred Bohman No Comments

At the time I am writing this mortgage interest rates are a little less than 1/8th of a percent higher than they were last Friday.

Once again this week was dominated by news about the Fiscal Cliff. Despite 3 meetings at the white house between Obama and Republican leader Boehner politicians still can’t come to an agreement about how to avoid the approaching Fiscal Cliff. As long as there is uncertainty the market will remain volatile. My guess is still that they will wait to the last minute then come to a short term agreement, basically extending the problem until the new Congress starts.

On Wednesday the Federal Reserve(FED) President Ben Bernanke held a press conference after concluding the FED’s monthly meeting. At the press conference he confirmed that the FED will continue to buy long term debt to keep interest rates low until the unemployment rate falls to 6.5%. This is considered good news for interest rates, but it did not have much of an effect on rates as this was highly anticipated by traders and thus already priced into the market.

Market recap for week ending 12/07/2012

Posted on: December 7th, 2012 by Fred Bohman No Comments

At the time I am writing this mortgage interest rates are at the same level they were at last Friday.

This week was dominated by news about the Fiscal Cliff and the Europe debt crisis. Politicians still can’t come to an agreement about how to avoid the approaching Fiscal Cliff when the all of the Bush tax cuts are set to expire. As long as there is uncertainty the market will remain volatile. My guess is still that they will wait to the last minute then come to a short term agreement, basically extending the problem until the new Congress starts.

Today the US employment report came out. The report was mainly good with strong job creation numbers and the unemployment rate dropping.  However many economist are discounting the report saying the numbers were affected by Hurricane Sandy and temporary holiday jobs.

In Europe, most of the region is already officially in a recession, and the economically strongest country Germany looks like they are about to slip into a recession as well.  Yesterday the European Central Bank left their version of our Fed Funds rate unchanged at 0.75%.

Next week on Tuesday the Federal Reserve(FED) is meeting and is expected to announce some details about quantitative easing on Wednesday. The Fed has been using quantitative easing to keep mortgage rates low by selling short term debt and buying long term debt such as mortgage backed securities. This keeps mortgage rates low because then there is more money competing for mortgage backed securities thus driving rates down.  The Fed is almost out of short term debt to sell, but most economists believe the Fed will still continue buying long term debt by printing more money.

Market recap for week ending 11/09/2012

Posted on: November 9th, 2012 by Fred Bohman No Comments

At the time I am writing this mortgage interest rates are about 1/8th of a percent lower than they were last Friday.

The big event this week was the election on Tuesday. On Monday the market were quiet, but on Tuesday we saw a spike in interest rates on rumors that Romney was going to win the election. On Wednesday after it was confirmed that Obama won we saw a drop in rates that cancelled out Tuesday spike and then some. There are two factors that caused this drop. First, since Obama does not want to extend the Bush capital gains tax cuts that are set to expire at the end of the year, many investors in the stock market are selling off in order to take their gains now at a lower tax rate. Whenever money flows out of the stock market it usually flows into bonds thus driving rates down. Second, Obama is seen as more likely to support the continued quantitative easing which is also keeping interest rates low.

Europe is back in the headlines and once again Greece is in the fore front. Greece is running out of money and is getting closer to defaulting on its debt unless they get more bailout funds. Also financial reports from across Europe confirm that most of the region is slipping back into a recession. Bad news out of Europe is mostly considered good news for US interest rates as investors will move their money to safer US investments.

Looking forward, now that the election is over we have the approaching “financial Cliff. All of the Bush tax cuts are set to expire at the end of year unless Democrats and Republicans can come to an agreement on which ones to extend and which ones to let expire. The closer we get to the deadline the more anxiety investors will get and the more volatile the market will become. Hopefully our country’s leaders can get their act together and get something done quickly.

Market recap for week ending 9/28/2012

Posted on: September 28th, 2012 by Fred Bohman No Comments

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.

Market recap for week ending 9/21/2012

Posted on: September 21st, 2012 by Fred Bohman No Comments

This week was a good week for interest rates. Rates today are just over 1/8 of a percent better than they were on Monday. The main reason we saw rates improve this week was because of the Federal Reserve’s (FED) decision last week to do another round of quantitative easing.

Generally the 10 year US Treasury bond moves in unison with mortgage bonds, but after the FED’s announcement to focus on buying mortgage bonds in this round of easing we have seen the gap between the two narrow. This is good for mortgage rates because mortgage bonds have a direct impact on mortgage rates but Treasury bonds don’t.

European economies are continuing to slip deeper into recessions. Europe is still wrestling with their debt problems but seems to be on track to resolving them. This would generally be consider bad news for US mortgage rates, but the positive effect of the FED’s decision to buy more mortgage bonds outweighed the negative.

No major economic reports are schedule to be released for the rest of the day so I don’t expect any major movement in the market today.