 Rate Watch 4-5-2011Tuesday, April 5, 2011 - Article by: Kirsten -
Owner Occupied only - call me for Investment or Jumbo pricing FNMA LOANS TO $417,000.00 FHA LOANS TO $271,050 Purchase/Refinance: * 30 Year Fixed 4.875%, APR 5.082%, 80% LTV, with escrows and 1% origination fee, 740 Middle FICO score Economic News: Bernanke's comments in his speech (April 4th in Atlanta) shows the increasing division within the Fed about how long to continue keeping the Federal Funding rate at zero to +0.25% as it has since 2008; for the last couple of weeks one after another Fed officials have increasingly warned the US should end its tightening and begin to increase rates soon. Bernanke saying present inflation pressures in commodities and energy prices being "transitory" is his apparent response to the increasing concerns within the Fed. Bernanke remains convinced the economic recovery is not yet on solid ground, remarks like he made last night may be his way of jaw-boning the bond market from sending prices lower and yields higher. We don't rally have to say it but, if rates increase even a little the depressed housing sector will be further constrained. Will the markets buy Bernanke's "transitory" view about inflation? Back in the day he also said the sub prime mortgage markets were likely to be contained and managed. Is the US immune to inflation? Brazil , Russia , China , India , likely the European Union on Thursday and emerging market countries all increasing rates. Answer: No. The latest headwind for the US Bond market is the US Budget deficit, and just yesterday, US Treasury Secretary Timothy Geithner said he sees "severe hardships" ahead if the US Debt Ceiling is not raised. He went on to say that the US will reach this ceiling of $14.29T on May 16th, and we won't have the ability to borrow beyond that date. This may be a bit of a scare tactic to get Congress to raise the debt ceiling - which we think it will. But the battle is raging between "older" members of Congress and several Freshman Congressional members, who are saying they will not raise the Debt ceiling without significant cuts in spending. As a country we obviously want to avoid the problems of Greece and Portugal and getting our arms around our unsustainable deficit is the first step. The Bond market would likely embrace tough austerity measures as it protects the values of Bonds. But greater spending with no offset of cuts and/or higher revenues will likely apply pressure on Bonds. |
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