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Mortgage Rates Spooked By Taper Talk (Over)reaction

Mortgage rates began the day in line with yesterday’s levels, for the most part.  Things changed in the afternoon.  Bonds began to deteriorate modestly after a scheduled Treasury auction.  These types of auctions can add clarity to the “demand” side of the supply/demand equation, thus causing a bit of bond market movement at times.  
The bigger impact followed the release of the minutes from the Fed’s most recent policy meeting.  Here too, the x-factor is clarity when it comes to the supply/demand equation.  When it comes to the Fed, we’re talking about the biggest driver of demand in the MBS and US Treasury markets.  Collectively, these bond markets do more than anything else to influence day-to-day changes in mortgage rates.  So when the Fed speaks, rates listen.
The Fed has been buying $120 bln a month in new Treasuries/MBS for more than a year now (it also reinvests proceeds from previous bond purchases).  Ideally, the Fed won’t need to do this forever (some say they’re already doing too much).  When the Fed moves to make a change in its bond buying plans, they will do so gradually.  In other words, they’ll TAPER the amount of their bond purchases until it gradually moves to zero.  …(read more)Forward this article via email:  Send a copy of this story to someone you know that may want to read it.
Source: mortgagenewsdaily.comNew feed

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