Daily Commentary by Larry Baer: A modest round of selling pressure has
developed in the mortgage market today - driven in part by a perception
Republicans and Democrats may be making some progress in efforts to find a way
down from the edge of the "fiscal cliff" -- and in part by buyers
pushing for price concessions heading into this week's $66 billion, 3-part
Treasury auction.
Even though neither
side has given any public signs they are ready to give ground on the way to
avoiding the looming $600 billion package of tax hikes and government spending
cuts set to be automatically triggered at midnight on December 31st
- there are indications preparations are under way for quick legislative
consideration of a deal if one is reached soon.
As similar talks
between President Obama and House Speaker Boehner showed in 2011 - promising
movements one day can completely collapse the next. Even so, the
slightest hint of progress has, at least so far today, ignited a roughly 100
basis-point rally in the Dow. As I have continued to repeat
in this commentary -- if/when a political compromise is reached to avoid the
"fiscal cliff" -- stocks will likely rally at the expense of rising
mortgage interest rates (as long as the deal is something more than a simple
extension of the current deadline). Until/unless a fiscal agreement is
achieved - a primary support for steady to perhaps fractionally lower mortgage
interest rates will remain firmly in place.
Even if mortgage
interest rates begin to rise following a resolution of the current "fiscal
cliff" issue - they probably won't go significantly higher. Not for
a while yet. Fed Chairman Bernanke and his colleagues on the Federal Open
Market Committee won't stand for it - and they will likely put your money where
their mouth is. Most observers believe the Fed will announce $45 billion
per month of new Treasury buying at the conclusion of their two-day monetary
policy meeting tomorrow at 12:30 p.m. This new buying appetite will
combine with their current $40 billion per month of agency-eligible
mortgage-backed security purchases to anchor mortgage interest rates near
modern day historical lows through early 2014.
The final gavel will
fall on the Treasury Department's auction of $32 billion of 3-year notes at
1:00 p.m. ET this afternoon. Demand from the global community is expected
to remain high for this offering - a credit market condition that tends to be
supportive of steady mortgage interest rates.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
