Rate Update October 14, 2008

In recognition of Columbus Day the bond market was closed yesterday (hence no ‘rate update’).  However, the stock market was open and had its biggest one day advance in market history.

Yesterday, the Dow Jones Industrial Average rallied by over 900 points as investors gained confidence that the financial rescue plan would prove effective.  Today, evidence of this exists in the credit markets.

This morning the closely watched LIBOR overnight lending rate dropped from 5.09% last Thursday to 2.18%.  This is a sign that banks are more willing to part with cash.

Typically, mortgage rates rise when stocks rise although mortgage rates rose rapidly late last week.  For now, we will shift our outlook to neutral and hope that mortgage backed bonds can rally.

Current outlook: neutral