Mortgage Rate Update October 14, 2013

Mortgage rates are unchanged this morning.  The bond market is closed in recognition of Columbus Day so there will be no movement in rates today.

With the government shutdown ongoing and the debt ceiling looming mortgage rates continue to take direction from developments (and the lack thereof) in budget negotiations.  If a deal is not reached by Thursday the US Treasury has said that it will be left with $30 billion in cash to meet all of the Federal Governments obligations.  Although I could make $30 billion last many generations the Federal Government would only be able to survive a week or two.

At this point the markets still believe that at the very least lawmakers will be able to pass a short-term solution.  If not, watch out- it will be a mess with countless consequences.

The WSJ reported yesterday (in THIS ARTICLE) that the prolonged government shutdown makes it more likely that the Fed will keep quantitative easing (QE) in place for a longer period of time.  Since QE is designed to keep long-term interest rates low this is good news for mortgage rates.

The US 10-year treasury yield has stalled out at the technical layer of resistance of 2.60%.  Since mortgage rates tend to track the direction of the 10-year treasury note I don’t expect mortgage rates to improve unless we see the yield drop below this level.

If When lawmakers reach a deal later this week I would not be surprised to see rates rise by .125%-.25% depending on the scope of the agreement.  However, given that the economic outlook will be slightly more pessimistic I wouldn’t be surprised to see rates reverse lower as we head for the end of the year.

Current Outlook: near-term locking bias