Interest Rates Move down slightly

Interest rates edged up just a bit last week .The following are excerpts from the newsletter on interest rates published by HSH Associates :

“In what turned out to be a busier-than-expected week for markets, mortgage rates found some space to fall, breaking a climb from record lows set back in December 2012.

The proximate cause of the fall in rates was investor concern over elections in Italy, which served to add more uncertainty into the Eurozone financial mess. Fearing the worst, stocks sold off and money was again plowed into Treasuries for safe keeping, with the yield on the influential 10-year Treasury slipping by more than a tenth percentage point by Tuesday morning. Reassuring testimony from Federal Reserve Chairman Bernanke about the Fed’s commitment to QE served to prop up stock markets as the week progressed, but yields remained subdued.

Mortgage rates may also be easing a little as a result of slackening demand, itself the result of higher rates in February. Lesser demand for credit loosens up the mortgage pipeline to a degree, and lenders may price loans somewhat more aggressively in order to attract more business.

There were some considerable bright spots in the economic data released this week. We can’t help but wonder if some of the uptick is a rebound after end of 2012 worries about the fiscal cliff and the aftermath of Sandy damped activity. The changes to tax policy don’t seem to have troubled the economy much, at least not so far, but the second leg of the cliff — the spending sequestration — may just be starting to come into play.

That’s all well and good, and while the fundamentals of such things are no doubt better than a few years ago, the fact remains that they seem to continue to lack the strength needed to get us back to a fully functioning economy. With political dysfunction in Washington ongoing, we will get reductions in government outlays, whether by sequester or agreement, and that will also serve to keep the economy in a low-growth mode.

Of course, slow growth does tend to keep the lid on increases in interest rates, as does the Fed’s extraordinary monetary policy, and inflation yet remains a problem of tomorrow. Mix in a little global financial uncertainty and there appear to be plenty of anchors for interest rates in general and mortgage rates in specific, with few overt signs of the kind of economy which will support measurably higher rates. At least for the time being, that is.

Mortgage rates broke a notchy upward climb which began in December this week, but even with the decline, it’s unlikely we’ll be revisiting record lows anytime soon. Next week’s got a fair cascade of new data, including the ISM’s service-business report, a Beige Book release, worker productivity and the all-important employment report. Rates hold level at best, but might increase a couple of basis points, too.”

The following are interest rate quotes by Al Hermann of American California Financial: