-Tim McLaughlin, VP Weichert Financial Services
With part one of the debt ceiling crisis behind us (albeit the story is not finished yet),there has been a lot of economic events over the past couple of weeks that have made the global markets very nervous and volatile…with a freefall in interest rates being the benefactor.
Some of the events:
- With a flair for the dramatic, an accord to come to terms on expanding the US Debt Ceiling and a move towards cutting costs and balancing the budget came with a few hours to spare on Tuesday. However, the story continues: what cuts will be made, and how much will those cuts drag on the economy? Will the US lose its global AAA sovereign debt rating, and what will that mean for Treasury, Mortgage Backed Security, and Corporate borrowing costs?
- The Yen depreciated about 4% against the dollar Thursday morning, sending the Global Equity markets into a further tailspin. The Bank of Japan also announced an additional 10 billion Yen to its Y40 billion Yen asset-purchase program to limit the damage of the country’s rising currency on the export-driven recovery in the wake of the devastating earthquake and nuclear disaster earlier this year.
- The European Central Bank resumed bond purchases and offered banks more cash to stem the spread of the debt crisis and to calm the ongoing woes related to Greece, Ireland, Spain, and Portugal.
- QE3 talk on the horizon – The Fed is rumored to be considering a new round of security purchases to spur the economy if growth and employment keep languishing and inflation recedes
So what is the bi-product of all this shaky economic news? Rates have fallen to the lowest levels of the year, with 30 year mortgages in the low 4% range, 15 years in the mid 3% range, and 5/1 hybrid ARM’s with a 2 handle interest rate. Will these rates be short lived, with the prospect of a US Sovereign Debt downgrade on the horizon?