Mixed Week for Mortgage Markets This week's economic news was mixed for mortgage markets. A speech from Fed Chief Bernanke pushed mortgage rates lower early in the week, but weak results in the Treasury auctions caused them to turn higher again later in the week. In the end, mortgage rates finished with little net change. Despite a stronger than expected November Employment report released on Friday, December 4, Bernanke came out on Monday and repeated the Fed's plans to maintain the fed funds rate at extremely low levels for an extended period of time. According to Bernanke, the Fed still expects the labor market to improve very slowly, so they are reluctant to remove monetary stimulus by raising rates. Fed officials believe that inflation will remain low for the next couple of years, meaning that there is little short-term pressure to raise rates. Based on the results of this week's Treasury auctions, investors appear to agree with the Fed that there is little risk of higher inflation in the short-term, as demand was stronger than average for the 3-yr auction. Investors are far more worried about the risks of inflation in the longer-term, however, and the demand for the 10-yr and 30-yr auctions was very disappointing. The Treasury was forced to offer higher than expected yields to persuade investors to purchase the longer-term securities. Increasing yields reflect concern that the current deficit spending and monetary stimulus needed to help the economy recover will lead to higher inflation down the road. Since investments in mortgages have long-term time horizons as well, inflation expectations have a similar influence on mortgage rates.
Comments(0)