Danny Salas

Archive for September 24th, 2009

Chico, CA Interest Rates Market Report – Economic Influences – September 24, 2009

Fed's Statements Bring Rates Down

7-Year Treasury Auction

Today is the last day regarding the record setting $142 Billion in Treasury Auctions set by the Federal Reserve.  Tuesday saw $43 Billion is 2-year notes; Wednesday saw $40 Billion is 5-Year Notes, and Today will be the finale of $29 Billion of 7-Year Notes Auctioned off.  Yesterday’s 5-Year Note Auction did NOT fare well, causing interest rates to suffer, rather harshly, in the late morning.

$1.25 Trillion MBS Purchase Program

The United State Government agreed to extend it’s deadline to purchase Mortgage-Backed Securities (MBS) into the first quarter of 2010.  On the one hand, this is good, because it lays out a strategized plan to utilize the remaining $400 Billion left to purchase these bonds.  This caused interest rates to fall, in the afternoon.  On the other hand, it sets an end date to the available funds, or time left to purchase these MBS’s.  Once the market starts to understand that the well has dried up, and the U. S. Government cannot purchase any more MBS’s, interest rates will suffer.  Another reason why NOW IS THE TIME TO BUY! Now that the Fed has commented on their meeting, we’ll have to see how the 7-Year Note Auction goes, today.

Fed Leaves Rates Alone

So, the Overnight Rate was left alone.  Currently .25%!  Here’s the deal.  Rates Will Increase!  But this carefully thought out plan, to increase the purchasing of MBS’s into the first quarter of 2010, will make this increase gradual.  The program was designed to keep interest rates low, to help with the Housing Issue AND recession.  When there is a market for Bonds (MBS), it keeps rates low.  But when the funds start to dry up…rates have no where to go…but up.  So, with real estate values so low, and interest rates just about as low as they’re going to be for, probably, years…AND the $8,000 Tax Credit Incentive coming to an end…NOW IS THE TIME TO BUY!

Lock Advice

I’m still floating this morning, watching how the market reacts to the Fed’s Statements.  Again, I think October may be the last opportunity to see rates in the high 4% range.  But after October, expect to see the economy start to correct itself, coupled with the fact that the end of the Government Mortgage-Backed Securities Program will be getting closer and closer; interest rates will gradually start to climb.

Related Must Reads

Why Are Long Term Bond Investments Riskier Than Short Term?
What Are The Facts Regarding The $8000 Tax Credit?

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