Interest Rate Update for the Week of March 14:
This week’s update will be in a different format than usual. The destruction caused by the earthquake and tsunami in Japan last week will continue to create market reactions around the globe. This update will be focused on the current and possible future impact to the financial markets that affect interest rates in the United States (as concisely as possible).
Before we begin, our prayers go out to those affected by this tragedy and we can only hope for the best moving forward.
Financial Market Movement to Date:
As if the situation were not dire enough, there are reports on March 15 of enough leakage from nuclear reactors to ‘impact human health’. The Japanese stock market dropped 11% on this news which followed a 6% drop the day before.
The United States is considered the safest place to ‘park’ money when there is global unrest. These funds are generally invested in U.S. denominated assets (such as U.S. Treasuries and Mortgage Bonds) and cause home loan rates to decline. In the last few days, this has happened and rates are down .125% to .25%.
Possible Future Impact:
First, does the situation continue to worsen? If so, we could see a continued sell-off of global equities and subsequent investment in safe assets. If the situation improves and fears of future damage dissipate, there could be a fast market correction. The important factor to understand is the current betterment in rates is from the temporary flight to safety. It can change in as little as a day.
Second, a longer-term situation also arises. The Japanese hold massive amounts of U.S. denominated assets. You have to think they will need to sell a large number of investments to fund clean-up and rebuilding. If this happens, rates potentially could increase.
Sorry for the unusually long update, but this event will trump any and all economic reports until the situation is contained.
Recommendation:
A rate prediction would be a futile effort in light of the circumstances. Large movement in rates either direction is possible. My suggestion is to take the bird in hand if you have a transaction is process or considering a refinance.
Courtesy of:
Bob Bregitzer
Southeast Mortgage
[where: 30080]