Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – March 1, 2010

We're Sitting Above Support Lines For Low Rates

So…It’s March

What’s so significant about March?  Here’s the quick and easy…Interest Rates!  I have many people asking me where I think rates will go, and when.  Well, with the Government’s Mortgage-Backed Security Purchase Program ending this month, the easy answer is, “up.”  Whenever a large player exits the market, there are consequences, and the market reacts.  So, if the government, or a huge player, is leaving, where do we go, but into negative territory!  And even though we have had some interesting market movers, that have brought rates into a lower arena, we’re still averaging approximately 0.25% to 0.375% higher in rates, from just a few months ago.

Government’s MBS “Selling” Program

Just last month, the Fed indicated that they are going to start looking into selling Mortgage-Backed Securities.  So, The Fed will have $1.25 Trillion in Mortgage-Backed Securities, $777 Billion in Treasuries, and $166 Billion in agency debt to settle.  Let alone, they’ll still be auctioning off new Treasuries every two weeks.  So, the only way to attract buyers would be to increase their rate of return, and that translates to higher interest rates.

Temporary Fixes

As mentioned above (regarding market movers), we’ve had some surprises regarding interest rates, however, these are temporary. Greece will find some sort of solution to their financial woes, and when they do, money will pour out of American investments.  The Government Mortgage-Backed Security Purchase Program is unwinding, and the Carry Trade will, also, be coming to an end, shortly.  All signs to higher rates.

Fed’s Favorite Gauge On Inflation

The Core Personal Consumption Expenditure Index (PCI) came in at a year-over-year reading of 1.4%.  This is well within the Fed’s guide and comfort level of 1.0-2.0%.  So, another reading on inflation is good for interest rates.

I Know, We're In Safe Territory, But I'd Lock!

Locking Advice

While we sit at a comfortable level, just above all levels of support, if you don’t like risk, LOCK! However, keep in mind that we ARE sitting above these lines of support.  Especially the 100-Day Moving Average.  If we can manage to stay above this line, then floating, until we see some form of economic data to move us under this line, is risky, but potentially beneficial.  So, we have support, but if you don’t have a finger on the lock button, than don’t risk all of our more recent gains in value, and therefore, lower rates.

Related Must Reads

Why Market Movers Are Temporary
The Carry Trade Phenom

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This entry was posted on Monday, March 1st, 2010 at 10:56 am and is filed under Chico Home Loans, Home Buying, Interest Rates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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