Interest Rates nudge up again

Interest rates moved up slightly last week .The following are excerpts from the newsletter on interest rates published by HSH Associates :

“Moderately good economic news continues to press mortgage rates higher, as investors both here and around the world move their money from safe-haven investments in bonds and into riskier assets such as equities. Major stock market indexes across the globe put in some of their best January gains in years, all coming at the expense of bonds, whose yields rise as investor demand wanes.

Even with its massive balance sheet expansion, the Federal Reserve’s program to keep interest and mortgage rates low constitutes only a portion of the market, so there are limits to the Fed’s ability to maintain rates at rock bottom levels.

Frankly, if the economy doesn’t need cellar-level interest rates to function we are arguably better served in the long run without them. However, the chasing of better returns by investors is to be expected; in fact, it is one of the behaviors the Fed is hoping to see, since tying up money in concentrations of low-yield government-backed investments does little to spur economic growth. Better those funds should be spread out across the economy in hopes that they will be put to more productive use by others.

There doesn’t appear to be much grave concern over the rise in mortgage rates. That’s good, since there shouldn’t be. Interest rates rise and fall all the time as investors wander from one end of the see-saw to the other. If the typical pattern plays out, the fairly mad rush to stocks in January will peter out, some funds will go back to be parked in bonds, and interest rates will ease again. This is normal, even welcome behavior from a broad standpoint, with these forays into risk much healthier expressions than is fearfully stashing money in a virtual mattress. It also should be noted that rising rates can also temper demands for funds (mortgages especially) and as pipelines thin out, lenders tend to price more aggressively to attract business again.

Borrowers should always keep in mind that the most dire of economic situations brings the lowest interest rates, and if we are enjoying even the perception of better growth that rates should be expected to move off bottoms as they have. In the present situation, they have moved upward mildly, but not enough yet to crash the refinance market nor even scratch the purchase market.

They may have a little lift yet to go next week, but it seems to us that we may just hold pretty flat overall. “

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