Market Update
Thursday December 30, 2010 10:00 AM ET
By John Sauro
Bonds Pressured by China’s Rate Hike
Over the Christmas Holiday The Peoples Bank of China raised their key lending rate by .25% – the 2nd hike since October, in and effort to fight inflation.
Markets were caught off guard as China has raised rates six times this year to fight off a feverish inflation, which now stands at 5.1%.
Investors looking for better returns abroad will pressure further selling in US Bonds.
What this means is that US interest rates will have to move higher to attract the same investors.
On Tuesday the Fannie Mae 4% Coupon Bond lost 100 basis points, then, rallied 100 basis points on Wednesday, that’s .25% difference in interest rate for most lenders.
On Thursday, Initial Jobless Claims came in better than expected at 388,000, below expectations of 416,000 adding pressure to Bond prices which dropped to a new low $98.66.
This extreme volatility is the reason you need to work with professionals when shopping for the best rate on a mortgage. Keeping a watchful eye on the Bond market and knowing when to lock in a rate is a big benefit to our clients.
Housing
The S&P Case Shiller Home Price Index for the year ended October showed that prices for the 20 metropolitan cities fell 0.8%, below the 0.1% improvement that was expected, and the sharpest year over year decline in a year. Unfortunately, high unemployment and foreclosure’s hitting the market has played a role in pressuring the housing market.
Pending Home Sales were reported up 3.5% in November, 5% below the November 09 reading.
The National Association of Realtors expects existing home sales to rise 8% in 2011.
For now I recommend locking into a mortgage rate.