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Positive News Makes Rates Worse

We periodically explain the reasons why bond and stock prices move and why it is so important for borrowers, lenders and Realtors.

Interest Rates are driven by demand from major investors (money managers, mutual funds, banks, hedge funds, etc.). If positive economic news surfaces, investors want to buy stocks in companies, as stocks are best-suited to take advantage of a growing economy.

If negative economic news surfaces, investors buy bonds for “safety;” bonds provide a guaranteed return even when the economy is soft. An increased demand for bonds pushes up bond prices, pushing down yields or interest rates. This is the “inverse correlation” between bond prices and interest rates.

Bond prices affect mortgage rates b/c mortgages are treated like and sold as bonds.

The elephant in the room is the Fed. The Fed is creating excess/false demand for bonds by buying $80 billion of them every month. The Fed has to stop at some point, and this will send rates way up no matter how the economy is doing.

Conclusion: Rates will soar sooner or later; today’s rates remain a gift.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646