Comments Off on Looking Back And Looking Ahead : September 22, 2008

Looking Back And Looking Ahead : September 22, 2008


In a historic week for American Finance, mortgage rates rose considerably, reversing a 3-week trend through which rates had fallen.

The U.S. Treasury is the biggest reason why most conforming mortgage rates increased by a half-percent.

Hank Paulson’s government group helped to restore investor confidence that had steadily eroded from concern to fear since July 2007, before succumbing to outright panic last week.

Wall Street nerves were so frayed that at one point Wednesday, yields on government bonds were actually in the negative; investors were paying the U.S. government to hold and protect their money in exchange for a guaranteed loss of investment.

After the Treasury’s interventions, however, a sense of normalcy returned to Wall Street. Money poured back into stocks, siphoned from the bond market and that pushed rates higher.

This week, it’s anybody’s guess what will happen.

From a data perspective, it’s light — there’s Existing Home Sales, New Home Sales, and not much else. From a policy perspective, however, the week is heavy:

  • Congress is expected to authorize “hundreds of billions” for market support
  • Ben Bernanke and Hank Paulson will testify before the Senate Banking Committee
  • 7 members of the Fed are making public appearances

With so much rhetoric, it’s difficult to predict how mortgage rates will perform this week. The stock market may be the best predictor of rates.

If stocks are up, risk-taking is back in vogue and the bond market should suffer, pushing mortgage rates higher. By contrast, if traders stay clear of stocks in search of safer investments, mortgage rates should fall.

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