Markets React To The Election

Dated: 11/13/2016

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The U.S. election caused most of the movement in mortgage rates over the past week. The U.S. economic data was overshadowed by the election and had little impact. Following the Trump victory, mortgage rates rose to the highest levels since early June.

The initial reaction to the election results followed the expected pattern. Bond yields moved significantly lower as the news increasingly favored Trump. Overnight, 10-year Treasury yields were down more than 10 basis points, and stock futures were down 5%. Investors have long felt that there is greater uncertainty about future policy under a Trump administration than there would have been if Clinton had won. As the outcome shifted toward a Trump victory, investors switched to safer assets, such as bonds.

Both stock and bond markets changed course dramatically, however. Ten-year Treasury yields climbed over 25 basis points from their lows, and the Dow opened in positive territory on Wednesday. The reversal took place as investors shifted their focus to potential changes in the economy under a Trump administration. In particular, Trump is expected to spend more in areas such as defense and infrastructure. In addition, he has said he will cut taxes. This might cause the budget deficit to increase, which would result in a larger supply of Treasuries and an increase in the outlook for future inflation. Since this would be negative for bonds, yields moved higher on Wednesday, including mortgage rates.

Source: MBS Quoteline

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David Sarnowski

David is a seasoned real estate professional, specializing in residential sales, rentals and investment properties. David is a 15 year resident of the New Jersey Gold Coast, with the local knowledge n....

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