Mortgage Rate Update December 17, 2010

Posted on by Evan in Rate Update

Mortgage rates are better today.

The bond market finally reacted to technical trading patterns yesterday and mortgage rates have improved.  Since Wednesday’s close mortgage-backed bonds (MBS’s) have improved by 125 basis points.

Also helping rates is a flight-to-quality trade prompted by news out of Europe.  Overnight Moody’s rating agency downgraded Ireland’s credit rating by 5 notches.  This news has prompted risk-averse investors to invest in US debt securities; helping to push yields lower.

Although rates are better in the near-term the longer-term trend is not working in our favor.  President Obama is expected to sign legislation today extending the Bush-era tax cuts AND instituting a new payroll tax deduction for workers.  This bill is expected to cost the US Government over $800 billion in the next 10 years and encourage economic growth in 2011.  Both outcomes are not interest rate friendly.

Current outlook: short-term float, long-term lock