Friday, August 16, 2013

Taper Talk Hurts Mortgage Rates

Taper Talk Hurts Mortgage Rates
This week, a broader consensus formed that the Fed will begin to taper its bond purchase program in September or October, and investors reacted by selling US stocks and bonds. The US economic data released this week provided little reason for the Fed to wait, and the European data showed unexpected strength. As a result, mortgage rates ended the week higher.
The Fed's massive bond purchase program powered stocks to record highs and helped push mortgage rates to historic lows. The Fed has indicated that it is almost time to begin to scale back the program, and the only reason to wait would be unexpected weakness in economic growth. This week's labor market and Retail Sales data was stronger than expected, though, causing more investors to anticipate that the Fed will taper in the next month or two. Both stocks and bonds were negatively affected by the growing expectations.
Mortgage rates received additional upward pressure from the economic news out of Europe. After eighteen months in a recession, second quarter GDP in the euro zone increased modestly, exceeding the consensus. In particular, Germany and France performed well. The recovery in Europe caused global interest rates to rise this week, including US mortgage rates. 

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