|Last Week in Review: Here’s what you need to know about Bonds and home loan rates after a volatile week of Debt Ceiling debates.
Forecast for the Week: This will be a huge week of news, ranging from heavy-hitting reports to the Debt Ceiling debate! Here’s what to watch.
View: Beat the summer heat with cooling options that benefit your budget, too! Read the tips below.
|Last Week in Review|
|“I GET IRRITATED, NERVOUS, VERY TENSE OR STRESSED, BUT NEVER BORED” – French actress Catherine Deneuve. Those words sum up the state of mind not only in the markets last week, but also across the country. The Dow finished its worst week in a year and Mortgage Bonds traded in a volatile fashion last week, mirroring the tense – and often irritating – news out of Washington. These are anything but boring times. But how does the Debt Ceiling debate impact Bonds and home loan rates? Read on to find out.
Going my way? The volatile and uncertain news story created a rare trading correlation between Stocks and Bonds. Often, Stocks and Bonds trade in an inverse direction (meaning that if one goes up, the other typically goes down). However, in 8 out of 10 recent days, both Stocks and Bonds have traded in the same direction – and this unusual scenario has happened less than 1% of the time over the past decade.
No need to panic. One important item to note is that the recent losses in the Bond market are far from a “panic selling” scenario, which indicates that the market senses that a deal will ultimately be made on the debt ceiling debate and that in the long term US Debt will still provide a relative safe haven from global uncertainty and economic sluggishness.
After all, the weak economy in Europe is still a factor. And in a world where there is high uncertainty and weak economic prospects, the US Bond Market will continue to attract funds – which could help keep home loan rates attractive for now.
Two Scenarios… No one knows exactly how the Bond market would react if the August 2nd deadline comes and goes without a debt agreement, since this has never happened before in the history of our country. But here are two scenarios to consider…
1. If a deal DOES pass, which many experts still think will happen, any deficit reduction program should strengthen the value of US debt, because there will be less spending. At the same time less government spending will also weigh on Gross Domestic Product (GDP). And just last week we saw how weak the GDP already is when the 2nd Quarter GDP came in well below expectations and at the slowest growth rate in 2 years. Additionally, the 1st Quarter GDP was revised sharply lower than it was previously reported. Remember, a weak GDP would make Stocks LESS attractive and Bonds MORE attractive – as Bonds generally perform better during sluggish economic times.
2. If a deal does NOT pass, the Treasury will be unable to auction off new securities since we will be unable to take on new debt as a country because we have reached our debt ceiling limit. The lack of new Bond supply coming to the Bond market will make existing Bonds/Treasuries/Notes more valuable – which is the opposite of what happens when new Bonds continue to flood the market.
Time for a contingency plan? Last Friday, Mortgage Bonds got a boost higher on news that a Debt Ceiling contingency plan would be brought forth by the Treasury Department. The plan would ensure present holders of US debt will receive their interest payments on time before making other payments, even if the debt ceiling is not raised. Such a move would likely push out the original August 2nd deadline to somewhere in mid-August, helping the US buy some more time as the frustrating-to-watch Debt Ceiling debate wages on.
The bottom line is that Bonds are still holding their own and home loan rates are still attractive for now. So if you or someone you know has been considering refinancing or purchasing a home, it’s a great time to look at your options. After all, this is a very volatile world and the current bullish sentiment in Bonds could change in a hurry.
|Forecast for the Week|
|As the Debt Ceiling debate impacts Stocks and Bonds, the markets get set for a week of heavy-hitting reports:
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.
As you can see in the chart below, Mortgage Bonds and home loan rates finished strong at the end of last weekend, as uncertainty had investors opt for the safe haven provided by Bonds. I’ll be watching closely to see how the ongoing Debt Ceiling debate and the after shock impacts Bonds and home loan rates.
Chart: Fannie Mae 4.0% Mortgage Bond (Friday Jul 29, 2011)
|The Mortgage Market Guide View…|
|How to Cut Cooling Costs in a Heat Wave
These eight tips will help keep your electric bill under control.
By Cameron Huddleston, Kiplinger.com
It is hot outside. Too hot to even go to the pool because the water’s so warm that it doesn’t cool you down. So what do you do if you live in a part of the nation taking a beating from this heat wave? You retreat indoors and crank up the AC. Then you gasp when you see the electric bill and start looking for possessions to pawn to pay it.
Keeping cool doesn’t have to bankrupt you, though. Edison Electric Institute (EEI), the association of shareholder-owned electric companies, offers these eight simple, no-cost tips to help you keep your electric bill under control this summer:
Set the thermostat at 78 degrees or higher when you’re home. That’s where I keep my thermostat set, and I feel comfortable at home all day — even when the heat index outside is in the triple digits. When no one is home, turn up the thermostat to 85 degrees. You’ll save 1% to 2% on cooling costs for each degree you raise your thermostat, according to EEI. And be sure to clean your air filter every 30 days to keep your air-conditioning system working efficiently.
Close the curtains or shades on any south- or west-facing windows to save 2% to 4% on cooling costs.
Turn on ceiling and table fans then raise the thermostat setting about four degrees — you’ll still feel cool. Make sure ceiling fans are turning counterclockwise and use them only when you’re in the room.
Shut doors to unused rooms and close any air supply vents inside them to reduce cooling costs up to 3%.
Cook with the microwave instead of a regular oven to reduce cooking costs up to 90%. If you can stand the heat outside, cook on a grill to lower cooking costs even more.
Install compact fluorescent lights. You’ll reduce lighting costs per fixture by about 66%, according to EEI. Be sure to turn off lights that aren’t being used and, if possible, dim ones that are being used.
Wash and dry full loads of clothes and dishes to save 2% to 4% on energy costs because you’ll be washing fewer times than if you ran your appliances to wash several smaller loads. You’ll also save by using cold water rather than warm or hot.
Check out your power company’s Web site because all electric companies offer money-saving tips, and many have energy-saving programs and incentives, including free online energy audits, rebates for purchasing high-efficiency appliances and low-interest loans to help purchase high-efficiency appliances.
Reprinted with permission. All Contents ©2011 The Kiplinger Washington Editors. www.kiplinger.com.
Economic Calendar for the Week of August 1-5, 2011
Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.
Economic Calendar for the Week of August 01 – August 05