Stocks go up…what’s in store for rates
The roller coaster ride continued with the Dow Jones Industrial Average exploding up 889.35 points or 10.88% in trading today. Much of this was due to stocks being on clearance and in anticipation of a possible .75% rate cut by the Fed tomorrow. A .5% cut is virtually guaranteed and some expect a larger cut that would take the target rate under 1% for the first time.
As we have talked about in the past, often times money will flow into stocks and out of bonds and vice versa. The price and demand of mortgage backed bonds on Wall Street is the ONLY thing that moves long term mortgage rates. So right now, mortgage rates are being pounded a bit. However, if we see a dramatic cut in the Fed Funds Rate tomorrow you can bet at some point we will see investors begin to move back into mortgage back securities (MBS’s). The result for MBS’s could very well be a nice rally, higher yields and most importantly lower 30 year fixed mortgage rates. Stay tuned!
Take a peek at the chart below showing daily activity over a the past 3 months for Mortgage Backed Securities. Up equals lower mortgage rates and down means….well we don’t like down J As you can see there has been a TON of volatility as this market starts to heal.
