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July 30, 2012

Market Update: A Picture is Worth a Thousand Words

by Jason VanDyke
Life Guard Stand

Jason VanDyke takes a look at recent economic news and trends in the bond market. While we know interest rates have been at record-lows for some time now, Jason gives us some insight to suggest these low rates may not be sticking around for much longer.

Summer is in full swing, and we all seem to be out enjoying the beautiful weather we are so lucky to have here on the Central Coast.  The lazy days of summer are not so lazy this week when it comes to economic news.  There are several events we will be watching very closely to see how interest rates will react over the next few days.

The European Central Bank (ECB) President Mario Draghi announced last week that the central bank may begin a debt purchasing program similar to what we have seen state-side over the last few years.  The goal when purchasing government bonds is to lower the yields and give support to a struggling economy.  Draghi will be meeting with US Treasury Secretary Timothy Geithner in Frankfurt, Germany today to discuss the ECB’s plan to purchase bonds and go over how the markets might react.  The statements which come from this meeting could translate into some significant movement in our markets.

Another news-worthy item we will watch closely is the Fed meeting, which takes place this coming Tuesday and Wednesday.  There is word that additional stimulus might be a major topic for us here at home as well, which is coming with mixed reviews.  The announcement of QE3 (round 3 for what is called “quantitative easing”) seems to be coming soon, and if this is announced we may see the bond market react negatively.  When QE2 was officially announced, we saw some significant deterioration in the bond market (which saw an increase in interest rates).

This bond chart (pictured below) gives a sense of what we have been seeing over the last 3 months. Our bond markets have seen strong steady growth over the last quarter, which has provided record-low interest rates (as the bond market goes up, interest rates come down). What I am most concerned with is the fact that the bond market might be a bit over-sold at the moment. With so much volatility and economic news due out this week, we might be setting the table for a bond market sell-off, which would be bad in the short term for our home mortgage rates.

If you are purchasing a home and don’t want to risk the gains we have realized, I would recommend locking in your interest rate to capture the record lows we are currently seeing.   And if you already have a mortgage and have procrastinated reviewing how a refinance might benefit you, NOW is the time to put the sunscreen on the table and make a quick phone call before heading to the beach to find out how much you could be saving.

To find out how you can take advantage of these historically low interest rates please give me a call and we will take the time to go over your scenario to see how you can benefit.

Jason VanDyke: 805.801.2139

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