A Quick Primer on What Affects Interest Rates and a Few Laughs to Brighten Your Day

Mortgage and Lending with Brand Mortgage Group

I believe that it is always helpful to periodically go over what affects interest rates so those that don't follow it every day can at least have a feel for what to look for.  Of course with the market being what it is and the economy being in something of a flux the things that affect it can change daily.

In normal situations (though who really knows Normal?  I am still looking for him.) the stock market and the bond market operate inversly.  When stocks go up the bond market is down (meaning the yield and thus interest rates are up) and when the stock market is down the bond market rallies and is good for interest rates.  Many, many things affect this.  Much more than it used to be when I started in this business.  And watching bonds is not always accurate as the ultimate determination on interest rates is determined by the GNMA, FNMA, and FHLMC coupons.  These are not readily available to most people so watching the bond and stock markets is at least a fairly accurate way to keep up.

A fairly constant stream of economic information affects the markets, including Unemployment data, Consumer Confidence indexes, Manufacturing reports, Producer Price Index, Consumer Price Index, and much more.  And then within each one of these numbers there is often hidden numbers to decipher.  As an example when the the Procuder Price Index and Consumer Price Index come out it is further looked at to determine taking away gas and food, which of course have recently been the major cause of overall increases, what the number is for everything else.  If it sounds confusing that is because it really can be.

What "THEY" think about the numbers is what ultimately determines what happens with the markets.  Who are "THEY"?  Well, they are kind of like Normal, hard to find and pin down.  Basically they are money portfolio managers, risk managment people, retirment and hedge fund managers, etc., those people who handle where money is invested.  Many times they will already have reacted to what they expect to take place.  This happens particularly when the Federal Reserve is going to meet.  They will have already factored in what they expect and the changes in the market will have already occured in most instance.  Then if the Fed does not do what they expected there is reaction to that.

The bottom line is that trying to keep up with it can drive you nuts.  If you will look at my picture...I had hair when I got into this business!  Without becoming a full time economist the best way to keep up with things in a general way is to read/listen to news and watch the stock and bond markets.  The 30 year fixed rates for the most part will follow the actions of the 10 Year Treasury Bond.  If the yield on this is up then usually so will long term mortgages.  If it is down then we get a break.

Hope that helps somewhat.  It is certainly a reader's digest version.  People ask me "What is going to happen to rates?"  While I can give them an educated guess my caveat is that if I REALLY knew I would be sitting on my island in the Carribean e-mailing my reports to those who paid me big bucks for it!


A man walks into a bar with a slab of asphalt under his arm.  He says "A beer please."  and "One for the road too."

Supposedly taken from an actual court transcript;

Attorney:  Doctor, before you performed the autopsy, did you check for a pulse?

Witness: No

Attorney:  Did you check for blood pressure?

Witness:  No

Attorney:  Did you check for breathing?

Witness:  No

Attorney:  so, then it is possible that the patient was alive when you began the autopsy?

Witness: No

Attorney:  How can you be so sure, Doctor?

Witness:  Because his brain was sitting in a jar on my desk.

Attorney:  I see, but could the patient still be alive, nevertheless?

Witness:  Yes, it is possible that he could have been alive and practicing law I suppose!

Apologies to all attorneys in the audience.


Have a great day!

Comments (0)