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Market Update

From the Desk of Jason Obradovich, Chief Investment Officer

Current Market Disruption and Historic Low Rates

As you may have heard, the mortgage industry is experiencing historic low-interest rates due to the fears around the Coronavirus and its impact on economic activity. The 10yr is currently at 1.15% vs the prior low of 1.35% from 2016 and mortgage rates are right at all-time lows as well.

I’m sure there are a lot of questions about market direction and how much lower rates can go from here. The main concern is over a global slowdown of economic activity and it’s difficult to say at this point what the future may hold.

While fears have far exceeded actual damages, there still have been large drops in stocks and bond yields. As more information becomes available, especially as it pertains to the ratio of new cases vs. those individuals that are cured/recover, the market direction will become more clear. But, as of right now, excessive fear is the main driver of where bonds and stocks are trading with volatility at highs. It’s important to remember that the market has been charging higher for years and disruptions like this often happen after these long bull runs.

Based upon futures contracts, the market is pricing in three rate cuts this year by the Federal Open Market Committee (FOMC) and I would expect rates to remain low throughout 2020. Also, with these types of situations, the market typically does not bounce back immediately. If we do see a reversion, it is likely to be gradual over time. The market concerns won’t disappear immediately and fear will likely subside slowly as more information becomes available.

If you’re wondering about whether or not you should lock in your rate now or wait, I would remind you that interest rates are at all-time lows and market direction is impossible to predict.

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