We live in a global economy. That means Bonds and home loan rates aren’t only impacted by financial news on the home front, but also by economic news from other nations.
What’s happening? China recently announced it will be cutting interest rates for the first time in more than two years, while the European Central Bank vowed to use more aggressive monetary stimulus to ward off further financial woes in the region.
How does this impact our economy? When other countries have economic troubles, it supports prices from dollar denominated assets like U.S. Treasury securities and Mortgage Bonds.
When the United States has positive economic news, investors tend to put more money into Stocks. That’s because Stocks are more risky, but generally offer higher returns. But in order to do this, investors must remove some of their money from less-risky Bonds.
Inversely, when the economy is sluggish or when there’s uncertainty in the world, money managers tend to remove money from higher-risk Stocks and put it into less-risky Bonds, increasing the demand for Bonds. This can cause home loan rates to improve, as home loan rates are tied to Mortgage Bonds.
What’s the bottom line? If Mortgage Bonds improve or remain steady, home loan rates will continue to hover near all-time lows. This could make for some wonderful home buying or refinancing opportunities in the year ahead.
I will continue to watch global developments to see how they impact Bonds and home loan rates.