Mortgage Rates May Increase on September 25th, 2006
Darren Meade
September 12, 2006
What are mortgage interest rates based on?
The only correct answer is Mortgage Backed Securities or Mortgage Bonds, NOT the 10-year Treasury Note. While the 10-year Treasury Note sometimes trends in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions. DO NOT work with a lender who has their eyes on the wrong indicators.
Now how can I be so bold as to say Mortgage Rates may increase in less than two-weeks?
The US continues to have a hearty appetite for foreign goods...the US Balance of Trade for July scored another record trade deficit, this time ballooning by 5% to -$68.0 billion and above expectations of -$65.4 billion. The previous monthly deficit record was -$66.3 billion set last January. The trade imbalance between the US and China continues to grow with a -$19.6 billion gap in July compared to July 2005’s gap of -$17.6 billion.
Regarding the trade deficit with China, there is an important Congressional vote coming on Sept 25th that could impact mortgage rates. In order to help close the trade gap with China, Congress will decide whether to impose a 27.5% tariff on Chinese imports. Why is Congress voting to impose such a tariff? Because China has not allowed their currency, the Yuan, to float higher against the US Dollar. The present agreement with the US calls for China to allow their currency to float up 10% against the US Dollar. China has only allowed a 3.8% move. Congress is not happy about this because it keeps Chinese goods very inexpensive in comparison to US goods, which hurts corporations and employment in the US.
How does China manipulate their currency to keep it weak against the Dollar? By purchasing massive quantities of Dollar denominated Bonds...including Mortgage Bonds. The more Bonds they buy, the stronger our Dollar...and in relation, the weaker their Yuan. So the threat of this upcoming vote to impose this large tariff on Chinese goods might just prompt them to allow their currency to strengthen or float higher against the Dollar, in order to avoid such a huge tariff being imposed. What does this all mean to us? It means that the Chinese may back off on their massive Bond purchases...and anytime a huge buyer steps back from the table, prices will generally decline. And as we know, when Bond prices decline, home loan rates go up. Rates have been held low partly due to the large extent of foreign purchasing of Bonds, so this is an important story to watch in the coming weeks - we'll be watching closely to see what the Chinese do in advance of the vote.
Today, San Francisco Fed President Janet Yellen speaks on the economy, and this is the same “Yellin'” Yellen who voiced some concerns over inflation last week and created a bit of a reaction in the financial markets. Any further comments today about inflation by Yellen could catch the attention of Traders and create a reaction.
Technically, Mortgage Bonds are continuing on the "bumper bowling" path between a solid layer of dual support provided by both the 25-day and 200-day Moving Averages at $99.89 and $99.86 respectively and overhead resistance at $100.19. Bond prices will likely stay trapped between the "bumpers" until a strong market-moving catalyst comes along to propel prices out of this range.
If a lender cannot explain how Mortgage Bonds and interest rates are moving in real time and warn you in advance of a costly intra-day price change, you are talking with someone who is still reading yesterday's newspaper, and probably not a professional with whom to entrust your home mortgage financing. Would you work with a stockbroker who is only able to grab yesterday's paper to tell you how a stock traded yesterday, but had no idea what the movement looks like at the present time and what market conditions could cause changes in the near future? No way!
Be smart... Ask questions. Get answers!
More than likely, this is one of the largest and most important financial transactions you will ever make. You might do this only four or five times in your entire life. but we do this every single day. It's your home and your future. It's our profession and our passion. We're ready to work for your best interest.
The only correct answer is Mortgage Backed Securities or Mortgage Bonds, NOT the 10-year Treasury Note. While the 10-year Treasury Note sometimes trends in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions. DO NOT work with a lender who has their eyes on the wrong indicators.
Now how can I be so bold as to say Mortgage Rates may increase in less than two-weeks?
The US continues to have a hearty appetite for foreign goods...the US Balance of Trade for July scored another record trade deficit, this time ballooning by 5% to -$68.0 billion and above expectations of -$65.4 billion. The previous monthly deficit record was -$66.3 billion set last January. The trade imbalance between the US and China continues to grow with a -$19.6 billion gap in July compared to July 2005’s gap of -$17.6 billion.
Regarding the trade deficit with China, there is an important Congressional vote coming on Sept 25th that could impact mortgage rates. In order to help close the trade gap with China, Congress will decide whether to impose a 27.5% tariff on Chinese imports. Why is Congress voting to impose such a tariff? Because China has not allowed their currency, the Yuan, to float higher against the US Dollar. The present agreement with the US calls for China to allow their currency to float up 10% against the US Dollar. China has only allowed a 3.8% move. Congress is not happy about this because it keeps Chinese goods very inexpensive in comparison to US goods, which hurts corporations and employment in the US.
How does China manipulate their currency to keep it weak against the Dollar? By purchasing massive quantities of Dollar denominated Bonds...including Mortgage Bonds. The more Bonds they buy, the stronger our Dollar...and in relation, the weaker their Yuan. So the threat of this upcoming vote to impose this large tariff on Chinese goods might just prompt them to allow their currency to strengthen or float higher against the Dollar, in order to avoid such a huge tariff being imposed. What does this all mean to us? It means that the Chinese may back off on their massive Bond purchases...and anytime a huge buyer steps back from the table, prices will generally decline. And as we know, when Bond prices decline, home loan rates go up. Rates have been held low partly due to the large extent of foreign purchasing of Bonds, so this is an important story to watch in the coming weeks - we'll be watching closely to see what the Chinese do in advance of the vote.
Today, San Francisco Fed President Janet Yellen speaks on the economy, and this is the same “Yellin'” Yellen who voiced some concerns over inflation last week and created a bit of a reaction in the financial markets. Any further comments today about inflation by Yellen could catch the attention of Traders and create a reaction.
Technically, Mortgage Bonds are continuing on the "bumper bowling" path between a solid layer of dual support provided by both the 25-day and 200-day Moving Averages at $99.89 and $99.86 respectively and overhead resistance at $100.19. Bond prices will likely stay trapped between the "bumpers" until a strong market-moving catalyst comes along to propel prices out of this range.
If a lender cannot explain how Mortgage Bonds and interest rates are moving in real time and warn you in advance of a costly intra-day price change, you are talking with someone who is still reading yesterday's newspaper, and probably not a professional with whom to entrust your home mortgage financing. Would you work with a stockbroker who is only able to grab yesterday's paper to tell you how a stock traded yesterday, but had no idea what the movement looks like at the present time and what market conditions could cause changes in the near future? No way!
Be smart... Ask questions. Get answers!
More than likely, this is one of the largest and most important financial transactions you will ever make. You might do this only four or five times in your entire life. but we do this every single day. It's your home and your future. It's our profession and our passion. We're ready to work for your best interest.
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