06/29/2009 – Mortgage Bonds Get Support

The over supply I have been speaking of below and on the news tab is now seeing some demand. I hope it’s enough to lower mortgage rates further.
China was a big buyer of our mortgages and had lost faith in their performance for a bit. They have now come out and said they will resume buying. The reason for this is interesting. The U.S. is the #1 buyer of Chinese exports and if our dollar weakens, or their Yuan strengthens in contrast to our dollar, Chinese products in the U.S. get more expensinve. China does not want the U.S. to slow it’s purchasing, so in turn it reinvests the dollars into our bonds market to help strengthen our dollar. Very smart and interesting.

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06/25/2009

This week rates have been holding steady in light of the fact that the Treasury is selling off Treasury Bonds to create capital. This creates competition, as money that goes into the treasury market could have gone into bonds and helped lower rates. Perhaps the Fed has been buying mortgage bonds, or will buy the treasury bonds to help clear the supply. See my post below about supply and demand.

New Tax Credit and Business 101

The Senate is pushing for a $15,000 tax credit for all homebuyers in lieu of the first time buyer credit currently in action. The new credit is planned to have no income restrictions.

Out of the blue, 2-3 weeks ago rates started going up. Infact they rose a full point in about a week. What was one day 5% or slightly better, became 6% or slightly worse. Will they come back down? Why did this happen?
Let's start with the former. This week rates have attempted to go lower and did so until today. Rates came back down into the low-mid 5's and then today on the news that the Treasury will auction of millions of bonds next week to raise capital, rates got worse. This takes us to the "Why?". This is now a simple case of business 101- supply and demand. All of these mortgage bonds and treasury bonds became to much supply, with not enough demand. To create demand rates have to go up so investors find the bonds more attractive. On top of this, the news is talking about several economic experts that have said the recession is ending soon and inflation will be on the rise. All of this = higher rates.