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Good, Bad, and Ugly Before the Fed

September 14, 2020

The Last Week in Review: Good, Bad, and Ugly Before the Fed

The Good

Last week, home loan rates hit all-time low levels despite progress and optimism on a vaccine, the economy, and the job market.

A continued tailwind for relatively low rates comes from the Eurozone, where their central bank, the ECB, left rates unchanged and refrained from adding more stimulus, despite very low inflation. This means rates in Europe, which are negative in most places, will remain lower for longer and that will help keep our rates relatively low as well.

The Bad

‘Too much of a good thing.’ The Treasury, in an effort to fund the government and pay for the enormous stimulus measures, had to sell $108 billion in Treasuries this past week. The buying demand for these new Bonds and notes was tepid. This applied upward rate pressure on the entire U.S. Bond market and limited the gains.

What will make the buying demand in auctions increase? Higher yields/rates or worse economic conditions, so that today’s low rates make for a relatively sound investment.

The Ugly

Volatility is back in Stocks. The NASDAQ lost over 10% in a 3-day span last week. Fortunately, Stocks were able to cover some of the losses before heading into the weekend.

The takeaway: Typically, when Stocks drop sharply, so do rates. That did not happen last week.

Bottom line: The backdrop for housing could not be better.

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