THE BASIS POINT

WeeklyBasis 11/06/06: How Elections Affect Rates

Fixed and ARM rates dipped by as much as .25% last week then came back up after Friday’s controversial ‘jobs created’ and ‘wage growth’ report for October. Friday’s report came in well below estimates, which would normally cause rates to drop. But August and September numbers were revised significantly upward and rates rose accordingly. The controversy is that many think the Labor Department was obliging the GOP White House with favorable jobs numbers ahead of tomorrow’s elections. Were the books really cooked? If revising data ahead of past elections is precedent, the answer is yes – but markets always even out over time. It just creates uncertainty short-term. As for this week, election rhetoric plus the wave of corporate mergers announced today will drive traders because there’s not much data on tap. Stock sectors that may take a hit with more Democratic influence are big pharma (drug approvals may become harder), military (Pentagon may lose funding priority) and hospitality (any proposed minimum wage increase would eat profits). But the rate markets should remain in their current range. You’ll note below that 30yr rates are still below 10yr rates – and in most cases, I can still keep a 30yr loan with interest-only below the 10yr interest-only.

Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 6.25% (6.39% APR)
10/1 ARM: 6.375% (6.515% APR)
5/1 ARM: 6.25% (6.4% APR)

Jumbo ($417,001 – $650,000) – NO POINTS
30 Year: 6.375% (6.515% APR)
10/1 ARM: 6.5% (6.64% APR)
5/1 ARM: 6.375% (6.525% APR)