The cause and effect of todays White House announcement- interest rates spike

The cause and effect of todays White House announcement- interest rates spike

Mortgage Bonds are trading sharply lower (Remember: Strong economic news normally causes money to flow into Stocks and out of Bonds, causing consumer interest rates to rise) on news that our present income tax rates – which were due to move higher on January 1st – will now be extended for an additional two years. Also, as part of the deal made between President Obama and Republican leaders – Emergency Unemployment Compensation (EUC) will also be extended for an additional 13 months. This will help the “99′ers”,or those who are receiving Emergency Unemployment Compensation, by allowing them to continue to accept benefits for the next 13 months and up to 99 weeks. It was estimated that 2 Million people would have lost these benefits payments over the holidays had this extension not been passed. Today’s news brings one word – certainty – to the markets. And Stocks, which like certainty, are trading higher on this news, at the expense of Bonds.

Another important point from today’s announcement is that US budget deficits will widen further to accommodate these measures and the way to pay for it is through the issuance of more Treasury Debt via more auctions…and the prospect of this added supply is negative to the Bond market.

Speaking of Treasury Auctions, the government will unleash $66B in new debt this week, with the results of the $32B 3-Year Note auction to be released at 1pm ET today. Be sure to check the Market News feature on the Bond Page for up-to-the-minute news flashes and market action as it hits the wires.

Today’s breaking news erased all of yesterday’s bullish sentiment in the Bond market and it also may give way to a “Santa Claus” rally for Stocks, which could further pressure Bonds.

Please call me if you want to review your situation, I am here to help. I’m always happy to talk to family and friends so please feel free to pass along the article or my information.

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