Mortgage rates were reduced at the same time that investors flocked to the safety of US Treasury bonds, which for the benchmark 10-year Treasury note dipped this week to as low as 1.86%. Typically, rates move lock step with the 10-year note yield. Spooked by the combination of a weakened economy in Europe, growing concerns about the Ebola virus, and worldwide geopolitical unrest, investors have rush to bonds.
Frank Nothaft, chief economist at Freddie Mac stated that since June 2013, mortgage rates are at their lowest levels although there is ongoing skepticism among investors pertaining to Europe’s shaky economic situation.
According to Lindsey Piegza, chief economist at Sterne Agee, the decline in unemployment claims is impressive. However, she believes the weekly numbers are volatile and the drop over the past few months has not yet translated into higher-paying full-time employment.
She said that with ongoing weakness in the consumer sector, as well as slower activity levels in the manufacturing industry and an increasing threat of disinflation, the current decline is not an indication of a strong economy, especially since the Federal Reserve is set to increase rates sooner than later.
Despite expectations that rates would begin to increase once the Federal Reserve pulled back on its economic stimulus, rates dropped. Everyone thought there would be upward pressure placed on interest rates once the Fed cut back on the buying bond program, as well as mortgage-based securities. The stock market coupled with current international turmoil pushed rates down instead.
Interestingly, mortgage brokers are predicting that rates below 2% will soon become the norm as lenders engage in a price war, with potential for things to intensify by Christmas. Behind cuts are falls in swap rates used by lenders to price mortgages related to yields on government bonds.
Some experts feel the primary benefit from an investment perspective is money being piled into government bonds, which in turn push yields down. This based on quick mood change of the global economic situation, followed by the sell-off in equities. With a steady decline in yields witnessed over the past few days, the market surpassed itself in yesterday’s trading.