Tomorrow looks to be one of the biggest news days for rates in recent memory. At 2 p.m. the Fed will make its announcement on whether or not it will start tapering and, if it does, how it will be structured. Soon after, the Fed will have a press conference to discuss the announcement.
Right now the Fed is buying Mortgage Backed Securities (MBS) and US Treasury notes (TSY) every month to the tune of about $85 billion (per month).Tapering would reduce this amount, but the “unknown” factor is to what degree the Fed will taper and how it will be structured: Will the Fed reduce the TSY buys down but keep the MBS buys constant? Will it do this evenly across the board?
The next and harder question is this: How much is already built into the market?
As you can see, there is tremendous upside and downside, depending on many factors. This is not to scare you to lock or float but only to let you know that you need to watch the market VERY closely tomorrow.
Couple of scenarios . . .
- Rates drop dramatically! The Fed announces that, even though it wants to taper QE , it understands the need to keep the housing market robust, so it decides to taper only TSY buys and NOT MBS. This comes as a complete shock to traders (some at least), and MBS rally and our rates drop 75-100 bps.
- Rates rise dramatically! The Fed announces that it will taper both TSY and MBS equally and for more than originally thought (buys drop by $16-25 billion). This is an unlikely scenario but one to consider
- Rates maintain their current volatility up – down all around. The Fed announces that it will taper equally across the board and at previously talked about $ (10- 15 billion). This scenario is already “baked” into the market.
Obviously time will tell, and the good news is that we only have a short time to wait.
Then again, what do I know. . .John E McClellan Branch Manager Supreme Lending – Austin 3420 Executive Center Dr. #300 Austin, TX 78731 512-279-1150 Office 512-279-1133 Fax NMLS #207768 www.JohnMcClellan.com
Host of “The Real Estate Zone”
Saturdays on News Radio KLBJ 590am and 99.7FM