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Four Reasons Why Rates are on the Rise This Week

June 8, 2020

Last Week in Review: Four Reasons Why Rates are on the Rise This Week

This past week, home loan rates ticked a bit higher from their best levels in U.S. history. More importantly, this increase in rates may be the start of a trend in higher rates.

Here’s four reasons why rates rose and why they may continue to do so:

        1. Economic optimism: More and more states are reopening, and people are getting back to work. Friday’s Jobs Report showed 2.5 million jobs were created, when 8 million jobs were expected to be lost. The unemployment rate rose to over 13%, but expectations were for a much worse 20% unemployment rate. Bonds and rates don’t like good news, and this was good news.
        2. Overwhelming policy response: The Fed and U.S. Treasury’s response to help the economy get through the coronavirus impact is by far the largest monetary stimulus in the history of the country. This is more positive news which has helped Stocks trade to their best levels since March 4. As Stocks move higher, many times rates do as well. We saw that this week.
        3. Coronavirus uncertainty abating: Hope and optimism are rising now that we are well beyond the worst of the coronavirus. If states continue to see unemployment and new cases go down, the optimism will be justified and better times will be ahead. Stocks and rates increase during better days.
        4. Global yields are increasing: In Germany, their 10-year Bund yield has moved from -.60% to -.27% as of this weekend. This is for the same three previous reasons. If yields in Germany continue to move higher from negative territory, U.S. rates, including home loan rates, will continue to tick higher as well.

The good news: Any uptick in rates in the near-term may be limited for two reasons. The Fed continues to purchase Bonds on a daily basis, thereby holding yields down, and economies are reopening slowly, so rates should increase slowly over time as well.

Bottom line: With rates at all-time lows, if you can secure a home loan to either refinance or purchase a home, now is a great time.

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