6/21/2004

How High Will Rates Go in June?

With a quiet economic calendar for the early part of the week, mortgage bonds and home loan rates will likely move in response to stocks, geopolitical events and technical factors. Remember that money usually flows back and forth between stocks and bonds, and when one is higher, the other is usually pushed lower and vice versa. Geopolitical events of terror will generally push bonds higher, due to what is called a "flight to quality", as money is pushed into the safe haven of stable bonds. In recent weeks, geopolitical and terrorist activity has not been as influential on market trading as has been seen in the past, as traders are becoming toughened to the continuing news.

Looking ahead, traders now have their minds focused on the Fed's next meeting on June 30, coincidentally the same date as the official hand-over of sovereignty to the new Iraqi government - this will be a very big day. Because inflation is bad for Stocks and bonds, the whole market really wants to "take their medicine", see the Fed raise interest rates, and get it over with. This Fed action will send a clear and strong signal to the markets that they are on top of inflation-related concerns. But will they stick to an expected .25% increase, or make a more aggressive .50% increase? A smaller increase is much more likely, but as we have seen in the past, anything can happen. Prices will likely continue their sideways move until the end of the month when the Fed releases it's decision on interest rates. -- The Mortgage Market Guide, June 21

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