It was another strong week for the U.S. financial markets. The Fed remained dovish in tone but clear on their intention to proceed with caution on interest rate hikes. They are also gradually reducing their Treasury and mortgage bond purchases. The Jobs report showed strong gains. All this along with Pfizer’s wonderful news on a COVID anti-viral has pushed equities higher on Friday. 

The 10-year Treasury yield dropped precipitously this week.  The Bank of England helped yields move lower by not raising short-term rates. This has caught some off-guard, given the ongoing global pricing increases and supply chain disruptions. The combination of low rates and the end of the pandemic (we hope) along with bullish sentiment by investors support the Bull Thesis through the end of the year. Professional traders will have one eye on the exit while navigating to maximize profits in various markets. Inflation remains a problem (as admitted by the Fed) and could be the party spoiler sometime next year. The Fed may have to move more quickly than anticipated on the Fed funds rate. However, those bearish on rates and the economy have been dead wrong. For now, it’s a party mood on Wall Street.  

While we have been of the opinion recently that interest rates will move higher, it is hard to comprehend how much liquidity has been pumped into the banking system by the Fed and other central bankers.  This massive amount of liquidity has compressed interest rates and increased the value of risk assets.  The housing market has been a big beneficiary of the low-interest-rate environment by allowing borrowers to buy bigger and more expensive homes.  

Additionally, low rates on refinances have lowered housing expenses for many millions of borrowers. This allows more money to be used to consume goods. Housing purchase activity on the high end remains robust as many people well-to-do borrowers have benefited financially over the last year. As a result, the high-end housing market is experiencing record sale after record sale. Our complex jumbo loan solution with attractive terms remains in big demand for those borrowers with intricate financial statements.

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