Mortgage Rate Update August 6, 2012

Mortgage rates are unchanged today.

Over the next month I forecast we’ll begin to see a “tug-of-war” in the interest rate markets between those who believe economic conditions are improving (causing rates to rise) and those who foresee a 3rd round of quantitative easing arriving in September.

Friday’s all-important jobs report showed that the US economy added 163,000 new jobs in July topping expectations of about 100,000.  Good news for the economy can be bad news for mortgage rates.

Across the Atlantic the Spanish Prime Minister signaled over the weekend that his country may ask for additional bailout funds soon to help relieve their fiscal problems.  His comments come on the heels of European Central Bank (ECB) President Mario Draghi’s statement a week earlier that the ECB would do whatever is necessary to preserve the Euro.  Investor sentiment over the outcome in Europe has improved since which has caused the US 10-year treasury yield to increase by about .125%.

However, mortgage rates have not followed the 10-year treasury yield.  Why?  Most likely because many analysts believe that the Fed will deliver QE3 at their September meeting and that it will mainly be focused on buying mortgage-backed bonds (MBS’s).  Therefore, I expect the yields on treasuries and MBS’s to converge over the next 30-40 days.

The economic calendar is fairly light this week and the US treasury is set to auction $72 billion in new debt.  I will maintain a long-term floating bias.

Current Outlook: floating