Fed’s No Taper Talk Boosts Bonds & Lowers Mortgage Rates
An economy still stumbling toward recovery was not enough to sway the Federal Reserve, which defied market expectations Wednesday and said it will not begin pulling back on its monthly asset-purchasing program.
On Wednesday Bonds had the biggest one day rally since August of 2011, due to the Federal Reserve unexpectedly delayed tapering of its Bond purchase program as Fed Chairman Bernanke said that the economy still isn’t strong enough to begin easing back on QE III. Many thought there would be a tapering announcement-but weak economic numbers and non-existent inflation will keep the Fed underwriting this economy recovery a while longer.
This is great news for Mortgage Rates, as Mortgage Bond prices surged to close at $104.09, up 118 basis points at the close on Wednesday and Lenders responded by lowering Mortgage Rates by approximately .375% on 30 Year Fixed Rate loans. I am recommending locking into Mortgage Rates for short term transactions (days to weeks) and floating longer term.
The Dow set a fresh high of 15,709.58 and the S&P 500 hit an intraday high of 1,729.44 on the news and bond yields moved sharply lower, with the benchmark 10-year note most recently at 2.76 percent. However, Stocks gave back most of Wednesday’s gains after the Fed’s Bullard said there could be an October taper. But later in the day, Bullard said the Fed need not rush to taper while inflation is low. Another example of talking out of both sides of your mouth.
By weeks end The Dow lost 185.46 points to 15,451.09 the S&P 500 lost 12.43 to 1,709.91 while the Nasdaq dropped 14.65 points to end at 3,774.72. Oil was last seen at $104.70barrel after hitting almost $113 on August 28 at the height of the Syrian crisis.
Next week economic data heats up with readings on inflation, housing, U.S. growth along with Consumer Sentiment and Confidence. The Treasury will also be peddling a total of $97B in 2. 5 and 7-Year Notes.
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The Chart below shows Wednesdays surge in Bond Prices. Hence the recommendation to lock into rates, as its a long way back down, should the market reverse. Remember- Mortgage Rate’s move in the opposite direction of Bond prices.
Market Moguls Comment on the Fed News
David Tepper, founder and president of Appaloosa Management, the Federal Reserve’s decision not to taper its $85-billion-a-month bond-buying program is a “pretty favorable environment for the markets.”
The Federal Reserve lost its chance for a “freebie” by deciding not to begin scaling back its $85-billion-a-month bond-buying program, Stanley Druckenmiller, founder of hedge fund Duquesne Capital.
Housing News
U.S. housing starts slipped to 891,000 in August, while building permits fell to 918,000. Economists had expected a rise in August housing starts to 915,000, up from 896,000 in the prior month. Building permits were forecast at 953,000, down slightly from 954,000 in the prior month.
Existing Home Sales rise by 1.7% from July to August to an annual rate of 5.48M units and above the 5.30M expected.
Economic News
Weekly claims for state unemployment benefits rose to 309,000. Economists polled by Thomson Reuters had expected initial claims to rise to 330,000.
The U.S. Consumer Price Index rose 0.1 percent in August. Economists polled by Thomson Reuters had expected consumer prices to rise 0.2 percent, the same rate of increase as the prior month.
U.S. industrial production rose 0.4 percent in August, matching economists’ expectations and following an unchanged reading in July.