However, the continued uncertainty out of Europe helped keep bonds and home loan rates on an improving trend, as the U.S. dollar and U.S. bonds (including mortgage bonds, which home loan rates are based on) are benefiting from safe haven buying. Ultimately, Europe needs to provide a large financial backstop for their banks and sovereign debt in order to fix their problems longer-term. Until this happens, uncertainty should benefit the U.S. dollar and U.S. bonds, and keep home loan rates relatively low.Inflation remains a factor, however. Despite the Fed stating again last week that inflation is moderating, core consumer level inflation has continued to inch higher every month. Also, last week’s Producer Price Index showed that inflation at the wholesale level was slightly higher in November.
As you can see in the chart below, uncertainty out of Europe continues to help bonds and home loan rates, though they are facing resistance.
Chart: Fannie Mae 4.0% Mortgage Bond (Friday, December 16, 2011)