Possible Euro “Taper Tantrum” Taints American Rates


We may have needed a reminder in recent weeks that mortgage rates are based on more than mere national interests. Things were looking good for a spurt: The Federal Reserve had rejected a rise in the Federal Rate until at least December the the bond market was leaning toward lower rates as well. Everything in the U.S.A. implied that things would stay low, stay calm.

As we’ve seen previously this year, it turns out that Europe plays a big role in our mortgage rates as well. We refer, of course, to the period of tension that Brexit brought to the The Fed, causing a long hold-off on raising rates. This week’s activity is considerably less dramatic than that, however banks of the continent across the pond has American bankers eyeing their activity warily.

Bloomberg reported on Tuesday that the Euro Zone’s Central Bank was looking into tapering its 80 billion a-month bond-buying program. That policy was to run along with the continent’s qualitative easing program, and new suggestions imply that it would be cut down across several €10 billion steps.

Now, this is hardly an “announcement,” and nothing is official. Spokespersons for the European Central Bank have flat out denied it. But there’s historical precedent for the impact on the market. During 2013, the minutes from a Fed meeting led many to believe the body would taper our own $85 billion-a-month bond-buying program, inciting fears. The event came to be known as the “taper tantrum.”

“Testing market reactions to trial balloons is not new to the ECB,” noted Carsten Brzeski, the chief economist at ING-DiBa. “The (Federal Reserve) experience with a too early announcement of tapering, however, should still be a good warning to the ECB not to start these tests too early.”

The results in our corner of the world has been an upward shift, to 3.5 percent on the average 30-year fixed mortgage. That’s a jump from the 3.375 we’ve been getting used to, but it could have gotten much worse if the EU rumors were true. Consider the rise in rates today to be a hedge against future increases.

That said, you may want to lock in while you have the chance. Looks like we’ve got other things aside from The Federal Reserve to take into account.