Wednesday, March 19, 2014 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
Mortgage rates skyrocketed today as both stocks and bonds sold off after the release of the FOMC policy statement. 4.50% has now become the most prevalently quoted conforming 30yr Fixed Rate for the best qualified borrowers and has 4.625% being touched in some areas. The rate markets took a huge hit primarily, as it turns out by observing the trading, investors were excessively long mid-level interest rates and to somewhat of a lesser extent, the 10yr note. Mortgage Backed Securities (MBS) prices were driven lower following the run up on the 10yr note. The statement was about the same as the December statement according to Janet Yellen's comment at her press conference. The stock indexes fell mainly because the rate markets shot higher - not necessarily a long term impact but if rates continue to increase it will provide another path for investors to consider. Overall even though the Fed is not close to increasing interest rates, that it was a point of discussion has caused short term hot money to react. Yellen mentioned the Fall of 2015 as a possible time for increasing rates, but it is still data dependent she reminded.
When the FOMC meets every six weeks, there is generally a lot of things for the investors and traders to consider rapidly. This meeting has really shaken markets, at least today - assessing which of the details were drivers for the huge spike in rates and strong selling in stocks will take a few hours to quantify. At one point the DJIA was down almost 200 points before recovering a little into the close. Expect more market volatility again tomorrow. The 10yr is still holding key 2.80% this afternoon. The technical picture is neutral, so it may not be wise to float now. It is going to take a day or so for investors to assess the information and come to some reasonable outlook, the reactions this afternoon were computer driven without much thought.
In summary, relieved by the absence of bloodshed on Ukrainian soil, the market was struck in the chest from the shot fired by the Fed. Mother Russia may be lurking, but it is Janet that carries the briefcase with the nuclear codes. Much like QE last fall, the destination of this rollercoaster has been clearly stated--it is merely a matter of time and a few rolling hills before it's arrival. Dips in the market will always be present, but we ultimately know that rates can't sustain at their current levels--not if it's up to the Fed.
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