The first week of April saw long-term interest rates dip to the tune of approximately.125% — not a precipitous drop, but when the worldwide economy has been teetering so close to zero, any shift can speak to potentially major consequences. So what does this mean for the global lending market? A simple hiccup, or a portent of things to come?
The drop was accompanied by several other warning signs of instability, as the 10-year Treasury note (a fixed-rate debt obligation from the government to private holders) settled slightly under 1.75% and low-fee mortgages at 3.75%. While not disastrously low, these numbers don’t live up to the projections given for the post-Federal Reserve meeting market. Why? Overseas economic instability.
The European Central Bank (ECB) has been buying up bonds left and right, leading many to speculate about that the EU is facing — or, worse, already in — active deflation. The same story holds true in Japan, where rapid demographic shifts due to an aging populace have caused even more panic. China, however, continues to hold steady: financial analysts predict that its internal mechanisms are ultimately unsustainable, but not a cause for real concern at the moment.
For the first time since the Federal Reserve began to publicize their meeting minutes over a decade ago, the global economic market is a major factor in domestic interest rate policy. The two-year Treasury note, which is more sensitive to Fed fluctuations than its 10-year cousin, is predicted to go through at least one more hike this year. Lenders take note: this is a sign of greater faith in a strengthening domestic economy, and concomitant rise in mortgages. However, caution should be practiced with regard to overseas and/or production investments as the strong US dollar continues to nibble at America’s export industry and undercut domestic manufacturing thanks to cheap imports.
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