Credit Crunch Hits The Markets
3 August 2007
Friday’s bond market was up today following the result of economic data positive to mortgage rates.ﾃつ Residential mortgage rates still may hold unchanged due to tightening in the secondary mortgage markets.
Unemployment rose 4.6% in June, higher than expected and helped the market rally today. This is great news for mortgage rates, and directly helped improved treasury rates.
The bigger story is the increasing margin spread between treasuries and mortgage backed securities. ﾃつ The overall credit tightening that has happened this week has caused banks to price in additional risk, thus although we may have seen strong improvement in treasuries this week, we may not have seen a corresponding improvement in rates.ﾃつ In fact many mortgage products, especially non conforming mortgage products have posted rate increases, despite the improvement in treasuries.ﾃつ This is of course the exception to the norm, and represents the extraordinary course of events that transpired this week, and which are detailed throughout the mainstream press.
Next week brings us little economic news, the big event is the FOMC meeting.ﾃつ ﾃつ There have been some vocal calls to the Fed to decrease rates to help ease the pain of this credit crunch, however this seems unlikely.ﾃつ Fed President Poole has already made a statement that the Fed will not bail out the markets.
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