Mortgage Rate Update April 4, 2012

Mortgage rates are higher this morning.

Mortgage rates got rocked yesterday afternoon following the release of the minutes from the Fed’s most recent monetary policy meeting.  There was no indication in the minutes that the Fed was preparing to unveil another round of quantitative easing (QE) after “Operation Twist” ends on June 30th.  QE is designed to keep long term interest rates low so the lack of another round has many investors believing rates will rise in the 2nd half of 2012.

The trend higher didn’t last long though.  Mortgage-backed bonds (MBS’s) have already recovered half of the losses suffered yesterday afternoon as European fears continue to fester.  The Spanish Government reported disappointing results for a bond auctionearlier this morning.

The offering failed to draw significant demand pushing yields higher on Spanish debt.  In addition, two separate reports showed that Euro-zone economic activity and retails sales were worse than expected in in recent months.

As I’ve been stating the EU’s debt crisis plan relies on economic growth so another recession could threaten the stability of the financial system.  As long as these fears persist mortgage rates should remain low.

Its employment week and this morning’s ADP jobs report showed that the US economy added 209,000 positions last month; in line with expectations.  Friday’s government jobs report carries more weight.  When more jobs are created relative to expectations then rates tend to move higher and vice versa.  We’ll have to see if the markets pay much attention given that the crisis in Europe is heating up again.

Current Outlook: neutral