The 10 year US Treasury note declined to 3.85% on Monday. This was caused by investors pulling out of stocks and investing in safer investment vehicles. This morning the Ten Year Treasury was trading at 3.89% and the 3 Month Libor was traded at 5.06%. Until recently the 3 Month Libor usually traded at about 10 basis points above the 10 year Treasury. This price of the Libor is indicative of a market that is short of liquidity and the Bond market is sending the Fed a message. The Fed has another meeting on December 11 and at that time they will undoubtedly have to lower the discount rate. The question is how much they will cut and what message will accompany this cut. The message is as important as the cut if not more so. The world markets are watching and how this message is perceived can have a huge affect on the dollar and how inflationary this cut will be.
So how does this affect the housing market? Mortgage rates will come down and the thirty year fixed should be in high fives in the next few months but underwriting remain tight.
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