Where are rates headed - July 2009 Update

The complexity of the current economic situation makes it extremely difficult to
accurately forecast where rates are headed from here.  Fear has driven the stock
and bonds markets in the last many months with the government and the federal
reserve also playing roles in keeping rates lower. The Fed has stepped in to buy
treasuries (known as QE or quantitative easing) in the first half of 2009, which has
helped keep treasury yields lower.  The demand for US debt did soften in late May
and into June, which did drive yields up to close to 4% on the 10 year treasury.  
Yields have since dipped back to the 3.2-3.4% range.  Mortgage rates have
subsequently come down as well.  The million dollar question that everyone is
asking is when will the demand for US debt falter and the need for yields to head
higher to keep investors interested in US debt? The fact that the US government
is auctioning off billions of dollars of debt every week is eventually going to force
treasury yields higher and mortgage rates along with it.  Keep in mind that
mortgage bonds are competing directly with US debt so mortgage rates will have
to move higher to stay competitive.  

I personally feel that rates could drop slightly lower, but will probably move
sideways or go slightly higher over the coming weeks.  The key is the news that
comes out of the government and stock market.  Any piece of news that spooks
the markets and drives them lower could lead to lower interest rates or quite
possibly, higher rates as there is no clear pattern of how such events can impact
mortgage rates.  

If you find a rate that works for you, lock it in and move on.  





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