Greece is running out of banknotes, China is throwing bundles of cash into its frenzied stock market, Puerto Rico needs money to pay bills and the price of oil is tumbling.
When the global economy gets chaotic like this, the world’s wealth managers – pension funds, governments, and other big investors – look for a safe place to ride things out. Typically, that means parking their billions in U.S. treasuries, the German bund, or other stable debt.
That flow of investor cash can move mortgage rates, sometimes as much or more than any Fed pronouncement. As the world’s money flees to the relative safety of the U.S., there’s more money to lend, which generally means it’s cheaper for you and me to borrow. Investors essentially are saying that we’re a relatively safe bet. (In contrast, the cost to borrow in Greece jumped nearly 50 percent over the weekend, according to Wells Fargo.)
“Rates on long-term loans like mortgages are shaped as much by financial events in Shanghai and Athens as by Fed policy in Washington,” Redfin Chief Economist Nela Richardson said. “In general, volatility abroad helps keep rates from spiking here.”
So far, we haven’t seen a surge in demand for U.S. treasuries, meaning investors have been taking recent events in stride. Today, the Chinese stock market stabilized and Greek and European politicians offered up assurances. That’s good for the global economy. If investors do get spooked, though, we could see the 30-year, fixed-rate mortgage fall well below 4 percent this week, Richardson said.
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