What happens to rates now that the government shutdown is over and the debt crisis has been averted?

 

Now that Washington D.C. has gotten our government up and running again, and the fear of defaulting on our debt has been pushed off until after the new year, where does that leave mortgage interest rates?

1)  Talk of tapering has all but disappeared

In September, the markets were driven on speculation of Fed tapering back the purchases of Treasuries and MBS that are part of QE3.  The fear of tapering helped to drive interest rates up, with concern that actual tapering would lead to even further mortgage rate increases.  However, the government shutdown is expected to have a strong slowdown effect on our economic recovery, which has pushed back all talk of tapering.  Added to that is the transition next year of Fed Chairman from Ben Bernanke to Janet Yellen, which will also delay talk of tapering. This is good for mortgage interest rates.

2) There will be a flood of economic data releases

Expect intraday volatility as many missed economic reports will be released now that the respective government departments are back to work.  Although September data points are not likely to be seen as affected by the shutdown, the data isn't likely to garner as much credibility as usual with traders as the markets try to assess how serious the shutdown's impact was on consumers and future job growth. This could cause volatility with mortgage interest rates.

3) The government shutdown is expected to stunt the economy

Many economists feel that the government shutdown was bad for the economic recovery.  Just how bad though has not been calculated yet.  Regardless, when the economy stumbles, that always bodes well for MBS (Mortgage Backed Securities) and the bond market in general.  Until we see that the economic recovery is back on track, it relieves pressure from mortgage rates. This is good for mortgage interest rates.

 

 

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