Pssst…rates are going up

OMG!  The 30 year interest rates are in the 4’s.  Say it ain’t so!  How can this be?

The Fed over-shared that they may end their generous policy of purchasing mortgage-backed securities.  The securities are tied to our ten year treasury bonds (The bonds are sold to help pay the U.S. debt).  Ben Bernanke mentioned the policy could end sometime in 2014, if unemployment fell to 7%.

The ten year treasury bonds affect our fixed rate mortgages.  Over the past three years the Fed propped up the bond market, and kept rates artificially low because the treasury market could not sustain itself with regular investors.

The Fed began their campaign of supplementing the bond purchases because the Fed feared high rates would deter an economic recovery.

The 30 year interest rate is going up because the investors of the bonds are acting like a group of gossipy old men.  They are afraid that without the continuing government intervention, their investment will tank.  They are taking their money out of the bonds, and burying it in a jar in the back yard.  Because of the lessened demand for the bonds our rates have increased.

The markets love rumor and innuendo.  And like any good soap opera, the participants in the stock and bond markets over-reacted.

Nothing has changed in our economy to warrant the increase in rates.  The Fed is still buying the bonds.  The job market is fragile, manufacturing levels are low, consumer confidence is wavering.  But hey, who cares about the facts.

As the saying goes, if you can’t say anything good.  Shut up!  TMI is never a good thing.

FYI…On the other hand, did we really think the bargain basement rates would go on forever?  Seriously?

Diane Gerdes