"Wall Street, can you read me?"
"Yeah, go ahead DC, we read you five by five"
"We have a problem."
Wall Street may be overconfident of a debt-ceiling hike deal and that overconfidence is priced into the market.
In Washington, it can be tough to understand why New York is so sure of itself. While Wall Street is brimming with confidence that a deal will be struck, many Washington officials say the dynamics of this stalemate are different from any other they have encountered. And that means New York traders could be in for a big surprise in early August.
With less than two weeks to go before the Aug. 2 deadline, no deficit-reduction plan offered by the Senate or House has gained a significant amount of momentum. The House GOP’s “cut, cap and balance” proposal is dead on arrival in the Senate, which has yet to move its own budget.
This means that a failure to extend the federal borrowing limit will catch markets by surprise; we could conceivably see La Jolla jumbo mortgage rates rise 1-1.5% overnight, in early August.
I've worked with mortgage-backed securities traders and I'm amazed at the huge gamble they're taking. The culture of government bailouts is so pervasive in the financial community that the bankers are willing to ignore this risk.
Could La Jolla jumbo mortgage rates go lower? I suppose they could but there is clear and present risk right now. If you CAN, lock your mortgage rate to avoid this risk.