Monday Market Commentary: Rates Remain at 2011 Lows, Beware Uncharted Waters

by Alex Stenback on August 8, 2011

Last Week:
It was a wild ride for mortgage rates, which improved throughout the week but saw a lot of volatility. The most influential factor is sending rates lower: Stocks generally took a pounding on renewed fears of generalized economic weakness in the US and ongoing Eurozone debt worries, which had investors across the globe seeking safety in US bond markets.

30 year fixed rates still trading in the low 4′s – exact rates depend on credit quailty and the level of agency price adjustments to which individual borrowers are exposed, but it is safe to say that rates remain at the best levels since Nov 2010.

This Week:
Late Friday, the S&P downgrade of US debt to AA+ (from AAA) sent shockwaves throughout the financial markets. This is very much uncharted territory and a wait and see moment, but so far stocks seem to be taking the brunt of the damage, which is helping mortgages get cheaper.

In other words: So far, the bond markets don’t believe S&P. You can almost think of the bond/credit markets as a giant grading curve. No matter which series of letters the S&P assigns to US debt, it remains THE global standard when it comes to credit risk.

This fact, which is fueled by the ongoing flight to quality flow of money, is making mortgages slightly cheaper than they were on Friday. This could of course change on a dime as panicky markets digest the news flow.

With ALL of that as a backdrop, there is still the regularly scheduled economic calendar to contend with this week. Headliner reports are:

1. The FOMC (FED) meeting and policy statement on Tuesday 2.15 ET. This will be closely scrutinized for changes in the Fed’s outlook and any forward looking statements regarding the likelihood of additional policy measures to jump start the economy (QE3?)
2. Retail Sales (Friday 8.30 AM.) Investors looking for clues as to how 3rd quarter GDP will print should have this entry circled in red. A disappointing number here could provide additional fuel for falling rates.

Again, we are in uncharted waters here, so expect markets to look fragile, panicky, and volatile this week, but so far, the direction of stocks seems to be holding up as the most reliable ‘tell’ for mortgage rate movements – we will be watching this closely, and so should you.

This Week’s Economic Calendar [Econoday]
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Watching Mortgage Rates? Need a rate quote? Drop me a line or give me a call with a few words about what you are looking to do. I’l get back to you personally in short order.

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