|The improvement in U.S. mortgage rates continues as the financial markets consider the impact the British vote to leave the European Union (Brexit) may have on global economic conditions. Mortgage rates have fallen to the best levels in years.
Brexit has been good for mortgage rates. It has caused investors to expect increased uncertainty, slower global growth, and additional central bank stimulus. The combination of these factors has helped push bond yields in many countries to record lows.
Investors have responded to the uncertainty by shifting their holdings to safer assets, like bonds and U.S. mortgage-backed securities. The added demand for government-guaranteed debt has pushed bond prices higher and yields lower, especially in the stronger countries.
Investors expect that Brexit will lead to slower economic growth in Europe. Individuals and businesses may hold off on decisions to commit capital until the terms of Brexit are known, and the negotiations could take years. In addition, the already weak banking system in Europe may suffer further from Brexit, constricting the availability of the capital needed to grow. Slower growth reduces inflationary pressures, which is good for mortgage rates.
As a result of Brexit, officials from the Bank of England said that further stimulus likely will be needed to incite economic growth in the United Kingdom. The European Central Bank (ECB) also may need to add stimulus. In addition, Brexit likely will cause the U.S. Fed to wait longer before raising the federal funds rate. Accommodative central bank policy has been good for mortgage rates.
Source: MBS Quoteline
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