OVERVIEW ~ Mortgage rates rose insignificantly, as the Dow Jones Industrial Average for shares of stock swayed back and forth across the 10,000 mark. In the middle of investors’ greater inclination to leave aside the safety of Treasury securities and seek out investments with higher risks and therefore higher yields, the mortgage interest rate only accelerated from about 5 to 10 basis points, depending on whose data we’re looking at. The spread between the 10-year Treasury note and the average 30-year mortgage rate rose very inconsiderably from 1.96% to 2.04% (as of October 19th’s close), indicative of sustainable interest rates with insufficient immediate inclination to rise or fall by a significant amount.

We should note once again that the average fixed mortgage rate includes not only the whole range of private and conforming mortgages but as well as the assorted jumbo mortgages. In the recent past, these have been priced much higher than have mortgages with lower ceilings, but they are now returning to levels that are closer to other rates and are more acceptable to buyers. Thus more jumbos are being written. Still, conforming loans, those that qualify for purchase by Fannie Mae and Freddie Mac, make up the greatest share of mortgages being written. Thus, the Freddie Mac average interest rate, which rose a slight 5 basis points last week, is very crucial. The average rate here remains below 5% at 4.92%.

THE WEEK ~ The focus of attention for much of the week was the Dow Jones Industrial Average. Investors watched closely to see if it could climb above the psychologically important 10,000 mark. For many, the rapid climb back to the 10,000 level indicated a nearly recovered stock market; for others, though, it raised questions about whether the stock markets could sustain their laudable gains.

The week saw a few other announcements that were similarly capable of raising questions among investors. For one thing, the holdings of Treasury securities by foreign central banks have risen to a record level ($2.098 trillion) in spite of the fact that the dollar’s exchange rate has declined. A declining dollar is powerful to foreign investors because an investor loses some of his or her profits when exchanging out of dollars and into their own currency. This erosion of profits often causes foreign investors to bid Treasury rates higher or to avoid the auctions, which results in the same thing. Why this is happening now no one knows, and some analysts are concerned that it lacks due caution in the face of a falling dollar.

News was released later in the week that the return on high-yield bonds (often referred to as junk bonds, which are considered the riskiest investments among bonds) had risen a stunning 50.23% over the past year. This is difficult to explain, even as such bonds are relatively rare today.

 

Check out the market value at http://www.utahburden.com/Newsletter