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How is the potential default of the US Government going to affect mortgage rates?

Lately we have had numerous factors line up in favor of lower mortgage rates over the next 3-6 months.  We have a new Fed Chief nominated, Janet Yellen.  Yellen is seen as dovish and should keep us on the same course as the last Fed Chief and continue QE3 in at its current volume.    The Fed has also reiterated that, because of a slowing economic outlook nationwide, it will not talk of tapering for some time to come.  All these things have been driving rates lower.

HOWEVER—–

Now, with the talk of a potential default by the US Government, bond traders are selling.  This is driving rates up, and the closer we get to default the more pressure we will see to the upside.

So, what is the silver lining?  In the opinion of this uninformed Mortgage Banker, I believe that we will not default; and, as soon as it becomes clear that we have a continuing resolution and a raising of the debt ceiling, we should see bonds and MBS rally.

John McClellan

 

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