Mortgage Bonds Prices are at all time highs this week and you would think Mortgage rates would see more improvement. However, banks are slower to reduce rates than they are to raise them and will do all they can to maintain a healthy margin.Former Federal Reserve Chairman Alan Greenspan wrote an op-ed in the Wall Street Journal titled “US Debt and Greece Analogy”. He warned that the present path of government debt accumulation is unsustainable. “Don’t be fooled by today’s low interest rates. The government could very quickly discover the limits of its borrowing capacity,” said Greenspan. He went on to say that the present low inflation and low long-term interest rate environment has created a sense of complacency (within the government) that can have dire consequences.”
Mr. Greenspan also said that Treasury yields could jump, and quickly. “I grant that low long-term interest rates could continue for months, or even well into next year. But just as easily, long term rate increases can emerge with unexpected suddenness. Between early October 1979 and late February 1980, for example, the yield on the 10-year note rose four percentage points.”
There really is no fundamental reason for interest rates to be this low. One thing we know for sure is that they won’t stay this low for ever.
For now we recommend locking into mortgage rates here, as the lofty prices in Mortgage Bonds can easily tumble and move rates higher.
Current Price of FNMA 4.00% Bond: $100.16, -0BP