A combination of factors was negative for mortgage markets this week, and mortgage rates ended higher. Large budget deficits and economic troubles in smaller European Union nations made bonds less attractive to global investors. In addition, stock market gains sent the Dow to an 18-month high, which pulled funds out of fixed income investments. Finally, with just one week remaining for the Fed's MBS purchase program, comments from Fed Chief Bernanke about potential future MBS sales added to the pressure in mortgage markets.
For months, investors have been concerned that the enormous supply of debt needed to fund US government spending would force yields on US Treasury securities to rise to attract purchasers. This is what took place this week. Demand was surprisingly weak at all of this week's record Treasury auctions, especially from foreign investors, and yields were pushed higher. Since mortgage-backed securities (MBS) compete for investors with Treasuries, MBS yields rose as well, pushing mortgage rates higher.
In a speech on Thursday, Fed Chief Bernanke added to the volatility in mortgage markets with his comments about the possible timing of future sales of MBS from the Fed's portfolio. To support the economy, the Fed has purchased almost $1.25 trillion of MBS since the start of 2009. The Fed has made clear from the start that it was a temporary measure and that it would eventually sell its MBS holdings when the economy was healthy enough. Earlier this month, Bernanke stated that he did not expect the Fed to sell assets "in the near term". On Thursday, however, his language changed a little. While Bernanke assured investors that MBS sales would be gradual and that they would only take place if the economy were strong enough to handle it, he opened the door for the start of Fed MBS sales at an earlier date than previously anticipated. For more information and free mortgage advice, please e-mail Keith Gillow: keith@frontstreetmtg.com or call me at 231.946.6300.
Tight Lines,
Keith
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