Rate Update August 31, 2009

Mortgage rates are modestly better compared to Friday but have yet to make any significant breaks out of the technical trading range we identified then.

Mortgage rates are benefiting from a “flight to quality” amongst investors.  A “flight to quality” is when investors sell traditionally riskier assets such as stocks and reinvest the money into traditionally safer assets such as cash and bonds.  The additional demand for bonds drives yields lower which is why mortgage rates benefit.

What prompted this movement?  The Chinese stock market continued its sharp slide earlier today.  The Shanghai Composite index slid 6.7%.  Since August 4th the Chinese benchmark is down almost 25%.

In the US stocks are following suit.  At the time of writing the S & P 500 is off nearly 1%.

Looking ahead for the week it looks like a relatively busy week in terms of economic data.  On Friday we’ll get the all important jobs report.

Current outlook: neutral