THE GOVERNMENT SHUTDOWN & THE FINANCIAL MARKETS RICK TOBIN
Bond Yields and Interest Rates
If our government would have, or may soon potentially default on payments made to Treasury Bond investors
either here in the USA or abroad, then Bond Insurance ratings companies such as Moody’s or Fitch could
downgrade USA’s Treasury Debt from “AAA” (the highest and safest bond rating) to “AA” or some other
worsened rating. When an investment is downgraded such as U.S. Treasuries, due to perceived increasing
risk, then the interest rates paid on those same investments may increase too.
It is important to pay close attention to Bond Rating agencies’ possible downgrades of our Treasury debt here
in the USA. 30 year fixed mortgage rates are tied to the directions of the 10 Year Treasury Yield. As demand
for Treasuries decreases from third (3rd) party investors such as retired Americans, Chinese or Japanese
investors or governments, or the Federal Reserve themselves, then Bond Prices will fall. As Bond Prices fall,
then 10 Year Treasury Yields will increase, since they are inverse to one another. These rising Treasury Yields
will then, in turn, lead to increasing mortgage rates.
Government Backed or
Insured Loans
Over
the
past
several
years,
approximately 97% of all funded
residential
mortgage
loans
were
either government backed or insured
loans. The vast majority of these
funded loans were FHA, VA, or
USDA, and were also sold off in the
secondary markets to Fannie Mae
and
Freddie
Mac.
Fannie
and
Freddie typically purchase the bulk of
funded
residential
mortgages
nation ݥ