Monday, June 29, 2009

Why aren't interest rates moving back down ?

We have continued to see a retraction in the 5 year bond which is now 15 bps (basis points) lower than a week ago. Bank spreads (profit margin) over bond have increased to 2% yet there has been little to no movement in the 5 year rate.

Why is that ?

With the number of mortgage deals closing today and tomorrow, it is unlikely that rates will change before Thursday - if at all. If a bank changed their rate downwards today, they would open themselves up to having to reduce rates on all deals closing today and tomorrow which would effect service levels (this is the busiest time of the year for mortgage closings) by requiring a flood of emails & phone calls requesting changes to documentation and also effect profits (lower rates on all those deals means less income for the lender).

Remember that the banks will be closed Wednesday for the Canada Day

No comments: