Markets sang one minute in 2010 and screamed the next- Rates jump end of year

Markets sang one minute in 2010 and screamed the next- Rates jump end of year

“Wild thing! You make my heart sing!” – By The Troggs. Traders found themselves singing one minute only to be screaming the next, as Bonds saw huge swings up and down of 100 basis points on multiple days last week.

Remember, home loan rates are based on Mortgage Bond prices, so huge swings in Bonds causes home loan rates to shift as well. This underscores why it’s so important to work with a knowledgeable professional who understands how interconnected the market is and can help homeowners lock in at the most opportune times.

To help make sense of the volatility, here’s a montage of the top 5 hits last week that Traders and Bond investors appeared to be singing… and why.

#1 “Monday, Monday… so good to me.” – By The Mammas and the Papas

Last week started out with Bond prices receiving a nice bump on Monday thanks to strong demand for the Treasury Department’s auction of $35 Billion in 2-Year Notes.

#2 “Bonds in low places.” – To paraphrase Garth Brooks

On Tuesday, the Treasury Department auctioned off another $35 Billion… this time in 5-Year Notes, which carry more inflation risk. That auction wasn’t received nearly as well and sparked a sell off of Bonds.

To make matters worse, the sell off was exacerbated by the ultra-thin holiday trading volume. In other words, with many Traders out of the office for the holidays, there simply weren’t enough buyers in the market to offset the selling. So when prices dropped on Tuesday, the selling pressure gained momentum with each sale and the losses grew more dramatic. The end result was a drop of 100 basis points in Bond prices!

#3 “I’m Back. Bonds have lifted. And raised the gifted.” – To paraphrase Kid Rock

What a difference a day makes! Just one day after Bonds dropped 100 basis points, the opposite happened and Bonds saw a huge upswing. How was that even possible? Bargain hunting and a strong performance by the Treasury Department’s 7-Year Note auction were the catalysts behind the move, as buyers came out in droves and pushed Bonds up 119 basis points!

#4 “Home sweet home!” – By Mötley Crüe

Volatility wasn’t the only story that hit home last week. The final S&P Case-Shiller Home Price Index for the year was also released last week. According to the report, home prices in 20 metropolitan cities fell 0.8%, which was below the 0.1% improvement that was expected and the sharpest year-over-year decline in a year. This was not a good report, and when you consider more foreclosures coming to the market, it is likely that home prices could remain under pressure for part of 2011. Stubbornly high unemployment has played a role in seeing meaningful improvement in housing.

#5 “You’re unbelievable!” – By EMF

The volatility continued throughout the week, swinging another 54 basis points on Thursday alone. But in the end – through all the ups and downs – Bonds and home loan rates were able to finish the week strong. That means home loan rates are still unbelievably low as we start the new year.

The big news of the week will be the release of the all-important Jobs Report this Friday. The Average Work Week and Unemployment Rate are expected to hold steady, while Hourly Earnings and Non-Farm Payrolls are expected to rise.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

The important thing to note in the chart below is that the overall trend for Bond prices has been downward, which is not good for home loan rates. But last week, Bonds were able to finish strong, which demonstrates that there are opportunities to benefit from positive shifts in the market and low home loan rates despite the overall negative trend.

If you or someone you know has been thinking about purchasing or refinancing a home, call or email today to discuss your goals and how you can take advantage of these nice bumps in the Bond market.

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