Wow! What a day in the mortgage and bond markets today. I think it’s a good thing to say that while a lot of us saw this coming, very few of us expected that it would happen today. Let’s walk through what happened, what it means and where we go from here.
What happened? A couple of things happened that caused the bond market to go into a free fall (okay more than a couple):
- Several analysts and rating agencies have raised significant questions about whether both the United Kingdom and the United States will be able to continue to pay their debts as the staggering amounts that they are borrowing to keep their financial systems afloat are well, truly staggering.
- As GM inches/races/inches (depending on the moment) towards bankruptcy, it is becoming obvious that the US Government is going to have to shell out a LOT more money to keep GM somewhat afloat (another approximately $50,000,000,000 – but who’s counting?)
- Although the headline number looks good, as we discussed earlier, the existing home sales for April were less than spectacular.
- Case Shiller came out with their housing price value reports and they showed a pretty nasty case of the housing price drops. That means that the collateral for mortgage backed securities is dropping in value making them less desirable.
- A number of reports have come out recently that showed that the performance of mortgage backed securities is continuing to suffer and mortgage delinquencies are continuing to rise. We talked about one of those reports here, and another one of them here.
- Oil prices have been going up and the people in OPEC who control a lot of that are talking $75 to $80 a barrel while we’re only at $63 right now. Increasing the risk of inflation puts pressure on rates.
- The Federal government, through their manipulation of the long term Treasury and mortgage backed securities markets (also known as buying the market), had been keeping mortgage rates artificially lower than what the economic, financial and mortgage portfolio conditions would typically warrant.
- Oh and there’s this little thing called North Korea firing test missiles and Iran running ships in Read more