Rate Update December 8, 2009
After rates increased by .25% in the latter half of last week they have managed a quick reversal and have recovered most of the losses.
Mortgage rates are benefiting this morning from another flight-to-safety on renewed concerns over foreign debt. Earlier today the credit rating service Moody’s downgraded the credit quality of Dubai Government related debt. In addition, Fitch Investors’ Services downgraded Greece’s credit rating. The combined moves have driven money back into traditionally “safe” US-denominated debt.
The flight-to-safety trade is visually evident in the chart below. The purple line is the stock market which is considered to be a “riskier” asset class. You can see that stocks tanked in early trading this morning. The green line is the US Dollar index which is trading higher as investors move their money into “safer” asset classes (i.e. cash and fixed income securities). This is the dynamic which is pushing yields lower this morning.
As we saw late last week interest rates rise when the flight-to-safety trade unwinds. Since rates have dropped back below 5.00% it wouldn’t be a bad move to lock in.
Current outlook: locking bias