This is very important information about rates and is right on with what to expect going forward.....short translation.....don't think you have the markets figured out.....rates are going to rise, they have too....there is no other place for them to go but up. Rates will start rising soon regardless of what the "experts" are saying. Here are some critical pieces outlining the increase in rates.
Our Government has been very busy over the past few months monetizing our debt. Remember, the deficit is predicted to be, depending on who you talk to, between $1 Trillion to $1.5 Trillion. Yes I said Trillion (12 zero's after the 1). The auction results tells bond traders exactly what the worlds appetite is purchasing America's debt. Yesterday, it was not too good. This is important to watch closely because as purchase of our debt goes, so goes our dollar, so goes the potential of inflation, so goes the value of Mortgage Backed Securities. Finally, the major purchaser of MBS over the past year has been the New York Fed (our government). As the government weans itself off of MBS that has to be replaced somehow with new investors entering into the market. The reason why the government committed to $1.25Trillion in MBS is because there was not a market for MBS. The Government has been trying to create a market and apparently they believe they have been successful in that endeavor. Only time will tell if that is indeed the case.
Yesterday Mortgage Bonds fell after the not-so-good auction results but were able to rally despite a rosy outlook from the Fed statement. The outlook of low rates for some time and low inflation could have been the catalyst behind the move higher. If you dig deeper into the statement it revealed that the Fed will draw out the remaining commitment of the $1.25T MBS purchase program until the end of the 1st quarter of 2010. In the 1st quarter of 2010 the New York Fed will purchase Mortgage Bonds every other week, instead of every week that is currently being done. The New York Fed also said it will start to reduce its purchases this week. There will be no additional funds added to the allotted amount but just a longer weaning off of the program - mortgage rates should gradually increase during the transition period. Today the government is auctioning $29B 7-year Notes.
So as you look deeper into this you can clearly see the Government is now starting there exit strategy. This day has always been coming....be prepared it is here.
Kevin M. Breeland
General Manager
Residential Mortgage of South Carolina, LLC
427 Johnnie Dodds Rd.
Mount Pleasant, SC 29464
www.residentialscdailyrates.com
Competitive by nature...the Best by choice!
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