Comments Off on Forget The Dow Jones: How The Treasury’s Economy Revival Outline Helped Mortgage Rates

Forget The Dow Jones: How The Treasury’s Economy Revival Outline Helped Mortgage Rates

2009
02.11

His speech was much anticipated, but it was what Treasury Secretary Tim Geithner didn’t say Tuesday that caused mortgage markets to improve.

Mostly it was because of “safe-haven” buying.

Safe-haven buying is when investors move cash to the safest investments possible for fear of losing their money elsewhere.

This existence of the pattern is evident in looking at yesterday’s Dow Jones Index timeline. Stock markets were down some in the morning. Then, at 11:00 AM ET, in the moments immediately following the public release of Geither’s speech as text, stock market plunged by about 2 percent.

As the speech was delivered live, markets fell by 1 percent more.

It’s not that Geithner’s speech was a bad one, per se. It’s just that Wall Street was looking for a detailed plan that included remedies for banking, housing, and the economy overall. What it got instead was an outline for a plan and a frank discussion about the complexity of the economy.

Stock markets had been bid up last week in anticipation of a bailout. Yesterday’s action was the subsequent sell-off because economic uncertainty continues to linger.

It all ended up being good news for mortgage rate shoppers, though. When the dollars fled the stocks, they made their way towards safer, less-risky investments like mortgage bonds. And, because mortgage-backed bonds set the “going rate” for conforming mortgages nationwide, the added demand yesterday caused mortgage rates to fall.

For now, rates remain near the bargain levels set in early-January. As the Treasury clarifies its plan in the coming weeks, however, rates will be susceptible to big change.

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