Mortgage Rates Continue to New 3-Month Lows

Mortgage rates fell noticeably today, keeping alive an impressive streak of 13 days without higher rates.  Three out of those 13 have been ‘unchanged,’ yesterday being one of them.  There was a chance this marked a shift in the positive momentum, but financial markets were quick to get back on the ‘lower rates’ bandwagon when it began rolling again this morning.

Today’s positivity was made possible by a team effort of market movers.  Although it is one of the least significant of the bunch, Italian political and economic turmoil pushed investors toward safer-haven debt such as US Treasuries.  This helped Treasuries hold their ground overnight and helped MBS (the “mortgage-backed-securities” that most directly influence mortgage rates) begin the day in slightly positive territory (positive = higher prices = lower rates). 

More significant was the weak economic data in the form of the worst read on Consumer Sentiment since April just before 10am.  Bond markets, including MBS, hadn’t done much until then, but had a green light for further gains afterward.  Debt-Ceiling drama kept the tone supportive into the afternoon.  This might be slightly counterintuitive considering one of the supposed consequences of a violation of the debt ceiling is an inability for the US to “pay its bills.”  The thinking is that if the US defaults on its debt that rates would quickly rise.

Those participating in reality know that the US isn’t going to default on its debt in the near term future and that most of these theories are perpetuated by incessant political posturing.  The more realistic victim here is the US economy, and lower rates are a very natural consequence of economic weakness.  This is usually true in general, but doubly true right now as market participants are keen to observe any meaningful shifts in economic data that might offer clues as to how the Federal Reserve will proceed with it’s bond buying program (QE3).

That’s important for rates because the steady flow of stimulus from QE3 is a key factor in the historically low rates of the past 2 years, and it was the threat that the flow would be disrupted or abated that sent rates moving so quickly higher in May. The most important clue of any given month arrives next week with the Employment Situation Report on Friday.  That said, if the government shut-down actually happens, that report will be delayed until the following week.