Rates React to Looming European Central Bank Announcement


If you flash back almost exactly two months, you’ll recall that we looked at how possible tapering in Europe had led to rising rates in that moment. Rumors were published that the European Central Bank was looking to taper off its current bond-buying program, worth €80 billion per month. That report sent rates a-rising and stocks a-falling (to use Christmas vernacular), similar to the infamous “Taper Tantrum” kicked off by the United States during 2013. No official statements were ever released by the ECB, however wariness has remained high.

Now, on December 8, we’re expecting the largest financial body in Europe to comment on the subject (unfortunately the announcement will be made after the time of publication).

So why were mortgage rates moderately lower? After all, just the idea of tapering sent them up months ago…so it doesn’t seem to make sense that the actuality of the event would make them go lower.

Conservatism in the markets makes it happen that way, however. Essentially, both stocks and rates are going to behave in the most protective way possible when such news breaks. So, upon October rumors that tapering was going to end in Europe, stock prices sank and mortgage rates went up. This is expected. Essentially, this is just the markets reacting—actually, overreacting—two months early. It’s the same as if you heard that the workers at Reese’s were going to go on strike, so you bought all your Halloween candy two months early. The strike eventually happened, but you already had your candy bought so you don’t need to panic in the moment. Everyone has expected the taper moment for months, so now that it has, rates are actually dropping a bit because we’ve made ourselves comfortable in the meantime.

That said, today’s announcement will still have an impact on where rates go, moving forward, as we’re not sure how deep the ECB’s policy shifts will go.

“(ECB President Mario Draghi’s) rhetoric on EU economic conditions and future ECB economic stimulus will play a large part in where rates go from here,” said Ted Rood, senior originator at MB Financial Bank. “I like the trend this week, still not convinced rates have stopped their upward trend, but we’re getting closer to confirmation.”

As usual: Stay tuned!

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