We live in a world of irrationally-volatile-forces impacting financial markets. This time it’s different though!
Market corrections are one thing – there’s far more going on now, and it takes a 30 year look back to see the big picture. The three-decade long bull market for bonds, including Treasuries, corporate debt and mortgages, most likely ended on April 29, with 10-year Treasury rates at 1.67%. Since then rates have risen over 33%, and while the fallout from this week should come as no surprise – it was not expected to happen this soon – and certainly not to this extent. Bernanke’s testimony last week was the catalyst...everyone knows it was coming at some point...but why even mention it now knowing the impact it would have?
Market direction and recovery momentum often become self-fulfilling prophecies, dictated by emotion and psychology, as opposed to trading fundamentals. Thinking a market will react or move in a direction, followed by the appropriate action or trade, will set this in motion – so if traders think bond prices will be lower and rates will be higher in the future, and they dump their current positions – they are perpetuating the rise in rates.
So, with bonds being so oversold right now, it is likely that buyers will have locked on the panic – but if their rate can’t improve with the market – they’ve really sold themselves short. Float downs are the answer, so get with your lender on that immediately if you are buying a home right now!!!