Danny Salas

Archive for November 4th, 2009

Chico, CA Interest Rates Market Report – Economic Influences – November 4, 2009

Fed Comments, Today, Might Spark Higher Rates

FOMC Statement Today

Market participants will likely spend this morning holding their breath as they await the release of the Federal Open Market Committee’s (FOMC) post-meeting statement scheduled for 11:15 a.m. PST today.  The FOMC members convened the second of a two-day monetary policy strategy session earlier this morning.  Mortgage investors will be keenly interested to see what, if anything has changed in the Fed’s thinking about the economy, government economic stimulus tactics and the appropriate level of short-term interest rates.  In each of their post-meeting statements since March, the Fed has said it plans to keep interest rates “exceptionally low” for an “extended period.”   

There is a small chance the Fed may choose to do a little mixing-up of the verbiage of their post-meeting statement this time around — by dropping the phrase “exceptionally low” and/or “extended period” — to clearly set the stage for a change in monetary policy in coming months.  If this event were to occur — holding out hope for notably lower mortgage interest rates could be quite a costly mistake, for you and or your clients.

Advice On Wild Swings

Often times, interest rates will move reactively toward The Fed’s comments, not really having an opportunity to absorb the information appropriately.  So, we’ll see interest rates move in one direction, in somewhat of a kneejerk fashion, and then, after the market has time to truly consider and weigh the Fed’s comments, will move in the opposite direction.  Knowing what the Fed says and studying the information accutely can save clients thousands of dollars, over the course of a thirty-year fixed rate loan. 

 Another Record Week For Treasuries

Treasury Auctions, this the coming week, will reach another record amount.  $40 Billion in 3-Year Notes, $25 Billion in 10-Year Notes, and $16  Billion in 30-Year Notes.  This should prove quite interesting, as longer term notes are harder to gain investors’ interest and these Treasuries compete for Mortgage-Backed Securities.  I don’t like the odds, as I think foreign appetite might be tight and The Fed’s running out of money, soon.  So, expect this to put pressure on interest rates. 

Tax Credit Extension

The House approved the extension and expansion of the First-Time Homebuyer Tax Credit.  It will be interesting to see the House version, compared to the Senate version, and what ultimately, President Obama should sign by week’s end.  Included in this Tax Credit Bill is a proposal to extend unemployment benefits an additional twenty weeks.  This will, most certainly, effect the weekly Jobless Claims numbers and unemployment rate, so expect significant increases in these numbers, if this portion of the bill is passed, which could help interest rates stay a little stable, even in the eye of the week Treasury Auctions.

Related Must Reads

2008 Article On Kneejerk Reactions
Why Be Leery? Why Long Term Treasuries Are Harder To Auction
Tax Credit Facts

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