Rate Update October 15, 2008
Mortgage rates continue to march higher as selling pressure in the bond market persists.
The market has become extremely unpredictable lately. Normally our primary focus is on inflation expectations but this has not played a significant role over the past few weeks. Our secondary focus tends to be on the inverse relationship between stocks and bonds. However, this correlation has not held true either over the previous few days.
So what’s going on? Why is it that stocks are going down yet mortgage rates are going up? The answer appears to lie in the concept of “delveraging” which I had blogged about a couple weeks ago. Watch today’s you tube video to understand the meaning of this term and how it is impacting mortgage rates.
Moving forward mortgage-backed bond prices are approaching a crucial support level. Should prices break below this level rates will continue to worsen.
Current outlook: neutral with eye on support level.