Central Banks Drive Rates

Investors have become more focused on central bankers than on economic data. Recent central bank actions and comments have been good for mortgage rates, as rates have fallen to near the best levels of the year.

The head of the International Monetary Fund (IMF) recently described the global economic recovery as “too slow, too fragile” and of questionable durability. Sharing this view, central bankers around the world are doing what they can to promote growth and inflation, including cutting rates and buying bonds. Their actions have been good for mortgage rates.

The European Central Bank’s (ECB) expanded bond purchase program has added demand for bonds, helping to push global bond yields lower, including U.S. mortgage-backed securities (MBS). Extremely low and sometimes negative, overseas rates have also added to the demand for U.S. MBS, as foreign investors look for better yields.

In addition, Fed Chair Janet Yellen’s most recent speech has been favorable for mortgage rates. In it, she laid out the case for the Fed to take a very gradual approach to tightening monetary policy.

The most recent economic data shows that the U.S. is faring better than most of the world. The ISM national services index increased to 54.5. Readings above 50 indicate an expansion in the sector. Job openings in the U.S. climbed to very high levels by historical standards. The rate at which workers voluntarily quit their jobs also rose. Both the level of job openings and the quits rate are consistent with an improving labor market.

- See more at: www.GrahamPeterson.com