Everyone from traders to lenders to consumers are rattled by this week’s bond selloff and resulting rate spike. But in the immortal words of EPMD: you gots to chill. A more explicit QE winddown signal was inevitable. Mortgage rates dropped 1.25% (from 6.25% to 5%) from the November 24, 2008 QE1 announcement date to the January 5, 2009 date the Fed actually kicked off QE1 bond buying. This happened as MBS and Treasury investors bought ahead of the Fed. Then rates more gradually dropped another 1.75% from January 2009 to January 2013 on weaker economic conditions and more Fed support. Now begins the reverse: investors selling MBS and Treasuries before the Fed trims their buying. This process has run in fits and starts since January as investors speculated on when the Fed might trim their buying, picked up steam in May, and became a full tilt selloff since Bernanke’s comments Wednesday. Topday’s rates are up 1.25% (from record lows of 3.25% on loans to $417k) since January.
Rattling indeed, but if the bond selloff levels off, housing and the broader economy can sustain the rise thus far. So for now, we all gots to chill. Which, naturally, is this week’s Friday Funk installment. The 1988 song also samples two other funk bombs: Kool & The Gang’s 1974 classic Jungle Boogie, and 1980’s More Bounce To The Ounce by Roger Troutman and Bootsy Collins of George Clinton’s crew. I’m including those tracks as well to ensure you have enough funk to properly chill and get your cool back after a brutal week. Enjoy … and while you’re listening, read CalculatedRisk’s posts on QE winddown timing here and here.
Youtube song links:
– You Gots To Chill – by EPMD