Mortgage Rate Update September 30, 2013

Although stocks are down sharply this morning mortgage rates are unchanged from late last week.

The Dow Jones Industrial average slumped 70 points on Friday and is down over 100 points in early morning trade today.  Investors are bracing for a possible government shutdown as House Republicans and Senate Democrats cannot reach an agreement to pass the stopgap spending bill.

The money that is coming out of the stock market is not getting re-invested into the bond market which is why rates are unchanged from late last week.  Why might this be the case?

One explanation is that although a government shutdown seems more likely given the timeline the markets do not believe a shutdown would last very long.  Therefore, the impact on the economic recovery is likely to be insignificant.

A second explanation may be due to technical trading patterns.  Since September 6th mortgage rates have improved by ~.375% as mortgage-backed bonds have improved 11 out of the past 16 trading days.  A run like this makes investors concerned about a reversal.

Lastly, a third explanation is that we have  a very busy economic calendar this week that includes the all-important jobs report on Friday.  Investors may not want to jump into bonds and then have a run of positive economic news hurt their positions.

That said, if the day wears on and uncertainty grows regarding how long a shutdown will last these investors may take positions in the bond market which would help rates.  I will start the morning in a floating position but am prepared to shift to locking if lawmakers can find a deal to pass.

Current Outlook: floating