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U.S. safe haven and home loan rates

August 12, 2019

Last Week in Review: Thinking Like an Investor

This past week we watched home loan rates touch three-year lows as investors around the globe continue to seek the safe haven of the U.S. dollar.
Why are global investors moving money into the U.S. dollar and safe instruments like U.S. Bonds? Due to the lingering uncertainty behind the U.S./China trade dispute, global economies slowing, and central banks around the globe cutting interest rates.
All of this forces investors to search for yield in a world where many countries like Japan, Germany, Switzerland, and the like have negative interest rates, meaning investors who park their money in those countries receive no interest and a loss of principal. That's a bad investment.
So, our 10-Year Note hit 1.59% this past week, which is a ridiculously low level, but when compared to other countries around the globe yielding negative interest rates, 1.59% looks pretty attractive. And that coupled with the relative strength of the U.S. dollar, thanks to our strong economy, is the reason why the U.S. continues to attract significant investment dollars from around the globe.
For us in the mortgage and real estate industry, we must understand that volatility is high and any glimpse of good news or a random tweet could change sentiment quickly to something more positive, which is bad for Bonds and interest rates.
Finally, as mentioned, the 10-year yield hit 1.59% before ticking back up into the 1.70s to finish the week. At the same time, the yield or interest you can receive by investing in the S&P 500 Stocks is 1.96%. At some point, investors and the financial markets start to question, if I am investing for 10 years, am I better off investing in stocks like Apple where I can receive a higher yield or interest payment than Treasuries, along with a better chance of price appreciation? When that time comes, a decline in home loan rates, which has been in place since November, will pause.


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