The Dead Cat Bounce is a Wall Street term that refers to a brief recovery in the price of a declining stock, bond, security or market. The term is derived from the concept that “even a dead cat will bounce if it falls from a great height”. This phenomenon may apply to the mortgage bond market in the near future.
First of all, remember that when bond prices go up, rates go down. When bond prices fall, rates go up.
In the latter half of 2008, 30 year rates moved in a range from 5.875% to 6.5%. 15 year rates moved in a range from 5.75% to 6.125%. That is until November 25th, 2008. On that day the U.S. Federal Reserve Board announced that it would initiate a program to purchase mortgage backed securities from Fannie Mae and Freddie Mac, artificially propping up the prices of bonds and keeping interest rates low. The very next day rates on a 30 year fixed went down to 5.125% and ensuingly headed further south.
Over the last year and four months, the massive purchases (1.25 trillion dollars worth) of mortgage backed securities by the Federal Reserve have kept mortgage bond prices up and interest rates down. The 30 year rate has fluctuated between 4.5% and 5.25%, while the 15 year rate has moved in a range from 4.25% to 4.875%.
Now the bad news. The Federal Reserve has officially stopped buying mortgage backed securities as of March 31st, 2010. Mortgage rates have started to move up. While there may be some short term volatility, some experts expect rates to rise by 1% this year.
If you need to get out of an adjustable rate loan, or would benefit by refinancing, this may be your last chance to do so at a great rate.
And lets hope for the “Dead Cat Bounce” or bounces. Because this cat is officially DEAD!
Posted by Terry Brunner. Terry is a Senior Loan Officer with Horizon
Financial. Terry can be reached toll free @ (877) 627-9211 x150 or
email TBrunner@HorizonFinancial.org. Visit Horizon’s website at www.horizonfinancial.org
