U.S. credit already downgraded in China
It’s a done deal.
Standard & Poors has reduced the credit standing of the United States from AAA to AA+. Not just a state or company, not a toll road or utility, but the entire country.
Why are mortgage rates rising?
By now you know that mortgage rates are rising — three out of our four blog posts this week discussed the fact. Amy Hoak of MarketWatch.com just wrote an article titled “Mortgage rates jump to six-month highs.”
But, why are mortgage rates rising? There’s not just one answer, there are a couple other factors in play: Read the rest of this entry »
Weekly Recap (11/01/10-11/06/10)
Saturday
“I have never seen a foreclosure story presented like this!”
We hear a lot of first-hand foreclosure stories from our readers. But the Youtube video I saw yesterday takes the cake for the most, how do I say this, unique presentation of a foreclosure story yet.
The Fed strikes again!
I’ve said it before, the Federal Reserve has been the most successful government entity in providing any substantial form of stimulus or relief to our economy since the downturn began.
The Fed strikes again
What Good Are (Even) Lower Mortgage Rates?
After the conclusion of the Federal Open Market Committee’s (FOMC) one-day meeting on Tuesday, the Fed announced measures that will help serve to keep mortgage rates low if need be:
To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.1 The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.
Fed Announces MBS Purchase Extension
Minutes ago, the Federal Open Market Committee (FOMC) released a statement following their two-day meeting, which solidified most of, if not all, analysts’ expectations.
MBS/Debt Purchases Extended
Perhaps the biggest development was that the Fed announced that they will ease their purchases of mortgage-backed securities and agency debt by the end of the first quarter of 2010, not by year’s end as previously stated. Conforming rates should remain low for a while yet, but the Fed’s reduced demand might serve to nudge rates up. The decision to push their exit strategy back signals that private markets may not quite be ready to operate on their own by December.
FOMC Will Slow Purchase of Treasuries
The release following the conclusion the Fed’s Federal Open Market Committee (FOMC) meeting today revealed the Fed’s plans to begin winding down one of their many facilities (emphasis added):
…the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.
China’s concerned over US debt
Some interesting remarks today from the Chinese government regarding US debt :
Chinese Premier Wen Jiabao said Friday that he is “worried” about the country’s vast $1 trillion holdings in U.S. Treasuries and that China will pursue a policy of diversification when comes to its future foreign exchange holdings.
Wen’s remarks, which were made at the close of the annual National People’s Congress meeting in Beijing, echoed those that have been made by other high-ranking policymakers and bankers over the past year since the subprime crisis devastated the value of the mortgage-backed securities that made up a large chunk of China’s U.S. holdings.
A Few Observations From Latest FOMC Release
As expected, the Federal Open Market Committee (FOMC) concluded their two-day meeting yesterday by leaving the target range for the federal funds rate at zero to 0.25%.
Despite the expectations and strategies largely expected from the committee, there were a few aspects of the Fed’s initial press release following the meeting that stood out to me.
(1). The Fed plans to not only continue purchasing debt and mortgage-backed securities (MBS) from Fannie and Freddie, “it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant.”
Reader: Explain “A Bond’s Influence on Interest Rates”
A reader wrote in with some questions regarding how the issuing and supply of new bonds affects interest rates. HSH Vice President Keith Gumbinger provided a simplistic breakdown:
It’s a matter of supply and demand. When an item is in short supply, the price of that item rises; when plentiful, the price falls.
In the case of bonds, a lack of supply causes prices to rise. An increase in price means that the ultimate return to the investor is lessened, so his yield is lower. Lower yields means lower mortgage rates.
