RateWatch – The Day After

Markets: Bonds rallied today, avoiding the fifth straight day of red candles on the market, but the rally only pegged back 10% of the 4-day drop.  Still, it’s something.  Where are we on rates?  Weeeeeeelllll….

If you had 5.5% on an FHA loan yesterday (which some did, for various reasons), you probably still have it.  If you had 5%, you now have 5.375%.  If you had 4.75%, you have 5.25%.  Lenders compressed their rates on FHA rather than sliding the whole rate sheet higher (for a detailed explanation of how this works, go here).  On conventional, though, par is up to 5.375%, and that’s if you have 740 credit and 20% equity.  Above that LTV or below that credit is worse.

Analysis: Folks, it just isn’t pretty out there.  Bill Gross of PIMCO says the US is in some danger of losing its AAA bond status, the Obama Administration appears to be valuing labor contracts over the demands of Chrysler and GM bond holders, the government is offering record amounts of Treasury debt in an effort to keep spending, and the deficit is $1.8 trillion.  The geniuses at the Fed and Treasury thought that they could game the markets, get rates where they want them just by saying “boo” (and spending a $ trillion or so).  But that doesn’t work, fellas.  The market is bigger than that.  It’s bigger than you.  It will go where it likes and you can’t stop it.

I’d love to say, as many are, that the market is going to come back and the rate rises are temporary.  But I can’t.  I don’t believe they are.  Perhaps there will be some pullback here over the next couple of weeks, and rates will improve slightly.  That would be great.  The fundamentals, though, people, are just horrible.  The American people have too much debt.  The American government has too much debt.  Until we pay it off, things will not get better.

That’s how I see it.

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