Might be a slight tick downward in rates, as Fed next week is expected to explain away, as not indicative, a bigger-than-expected recent Non-farm Payroll report. Technically, 10 yr Treasury is slightly oversold. (i.e., expects momentum toward purchase, which moves prices up, and interest rate (yield) down. (See note #2)

Note: Explanation of the use of the term “Technically”. Stocks and bonds tend to be driven by two factors: One, called “fundamentals” is the actual value of the equity in question: are sales high, and expenses low, etc.? The REAL expected value. Secondly, the market also tends to follow the motions of graphs, called “technical” indicators. This can get quite sophisticated in the analysis, but bears a strong influence, as these are commonly seen to be indicators. For instance, if the stocks are trading below the 9, or 30 day moving average, then there may be an expectation that they’re lower than “they should be” and will therefore rise. It’s an interesting reality that these things tend to be true, in part, because people simply believe them to be true, and trade accordingly. Either way, it’s prudent to consider the “technicals” when thinking about where the rates may go.

Note#2: Bonds tend to trade opposite of stocks. In a stock, you buy it and it goes up, and you make money on the difference of the low value paid, and higher value accrued. Bonds, however, function a little differently. These are an instrument that has a promise to pay that dollar amount in the future. So what you may be for 90 today, with a promise to mature at 100 in a year from now, you will have gained 10 after one year, or a percent increase of 10/90 (amount gained/original investment) 11% yield. So, when bond prices go up, this means interest rate earned will go down. (e.g., same example, except price went up from 90 to 92. This is now 100-92, a gain of 8 over a year’s period, with yield (as a percent of purchase price) being 8/92 = 9%.

This is all a little confusing, but in general, think “opposite”: bond prices going up (which usually happens if people want to buy more, creating demand) then the yield will go down. And vice versa. Bond prices falling, means yields are higher.

Note #3: Mortgage interest rates are tied directly to US Treasury Bond prices (except in the case of Home Equity loans, which are tied to Fed rates), as these are the instrument that underlies the mortgage. Let’s say your lender allows you to borrow $200,000. This will ultimately be immediately sold off in the form of $200,000 of Treasury Bonds, as the promised rate to you will be guaranteed (as you would hope and expect), and the Treasury Bond rate that covers it is also guaranteed – that is to say, guaranteed to the extent that people have faith in the US Treasury to be able to pay back in that period (thus the daily fluctuation.)  As a matter of practice—and this may make the whole thing clear—your lender really never uses his own money, except for a brief period. They might acquire a Bond yielding 3% and sell that amount to you at 4.5%, making 1.5% on the process, for their efforts.

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