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End-of-Year Boost

By: Kelly DInnocenti | Published on: 01/05/2017
Categories | Economic Update |

Over the past week, end-of-year portfolio adjustments appeared to have the most influence on mortgage rates. The economic data and the Fed minutes caused little reaction. Mortgage rates ended the week a little lower.

Investors made final adjustments to their 2016 portfolios by buying bonds and selling stocks. Since the presidential election, stock prices have moved higher. Added demand for stocks and higher share prices resulted in a larger weighting in stocks in many portfolios. For year end, however, some investors needed to rebalance their mix of investments to include more bonds, including mortgage-backed securities. The added demand for bonds was good for mortgage rates.

The minutes from the December 14 Fed meeting released on Wednesday had little impact on mortgage rates. The minutes did provide some understanding of how Fed officials view the economic effects of expected policy changes under the Trump administration. According to Fed officials, expansionary fiscal policies are expected to increase economic activity and inflation levels. But Fed officials felt that it is too soon to predict the impact the policies may have on monetary policy. Along with everyone else, the Fed will have to wait and see what happens.

The ISM national manufacturing index released on Tuesday contained good news for the economy, but bad news for mortgage rates. The overall index rose to the highest level since December 2014. In addition, the prices paid component surged in December, hinting at future inflationary pressures, which would be negative for bonds.

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