Friday, June 23, 2006

Fed Funds to 5.50% by August

Only about a month ago it looked like there was a decent chance that the fed would pause in June. That is no longer the case. A 25 bps. increase in the federal funds rate is assured next week and it is starting to look like there will be a very strong chance that rates in August will be raised another 25 bps. A 50 bps point increase in the fed fund rates to 5.50% could easily put mortgage rates above 7.25% by September compared to the current level of about 6.70%.

From the Wall Street Journal, no link.

“U.S. Treasury prices were under slight pressure Friday, with the market unable to sustain earlier gains.

The 10-year Treasury note was down 3/32, or 94 cents for every $1,000 invested, at 99 11/32, to yield 5.21%. The 30-year Treasury was lower by 3/32 at 88 30/32 to yield 5.24%. The five-year Treasury was off 1/32 to yield 5.19%, while the two-year was down 1/32 to yield 5.24%. Prices and yields move in opposite directions.

Sentiment in Treasurys remains lackluster, with many investors waiting for next week's Federal Open Market Committee meeting. That event, combined with high expectations of a further rate increase in August, was limiting overall moves in prices Friday.

"Treasurys tried to bounce a couple of times, and couldn't hold it," said Michael Cloherty, fixed-income strategist at Banc of America Securities. "We look for the market to consolidate and wait for fresh news before the next leg of the bear trend continues."

Analysts expect a quarter-point increase in the benchmark federal funds rate at next week's FOMC meeting, lifting it to 5.25%. Beyond that, traders have priced in odds of another quarter-point rise in August at 90%. Such a backdrop casts a bearish pallor over rates.”


Anonymous Anonymous said...

Just wait... It's going to be very interesting...

Anyone remember the 70's?

30 year fixed at 10-20% will be commonplace once again...

With it, MANY foreclosures for the choosing!

Saturday, June 24, 2006 4:09:00 PM  
Anonymous Hamilton Gregory said...

You better hope not..we'll be in a recession @ 7%...and a depression @ 10% prices around here would be 1/4 of what they are taxes would go through the roof

Saturday, June 24, 2006 5:05:00 PM  
Anonymous Anonymous said...

Uh, I realize things have changed somewhat, and that the markets are used to 30 fixed rates in the fives, but I borrowed $180k at 7% in 1998--and that was a GREAT rate. At the time, people were borrowing at adjustable rates of 6.8, which is roughly where we're at or soon headed. (Of course, I was able to bring my fixed rate down to 5.875 a few years later... )

I think homeowners can absorb a wee bit more than the prophets of doom would have us believe--but not that much more. seven percent sucks, and it leaves less money in consumers' wallets. But I hardly think it the tipping point for a recession.

Monday, June 26, 2006 9:12:00 AM  

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