Through most of the first quarter of 2012, interest rates moved lower because of continuing concerns about the European debt crisis and an unclear view of the direction of the US economy. The yield on the 10 year US treasury bond dropped to 1.76% in February and FHA/GNMA rates dropped in measure.
During the last few weeks of the first quarter, rates increased as Greece recast its debt, and signs indicated that the US economy is gaining traction.
While it is premature to talk about a turnaround in the European debt crisis, it appears that the risk of crisis spreading from Greece to Spain, Italy, and Portugal has been averted – at least for the immediate future. That has tempered demand for US treasuries as a safe haven against European sovereign debt and has caused rates to increase.
On the domestic front, the economic outlook has shown steady, if unspectacular improvement. The unemployment rate dropped to 8.3%, as of March’s unemployment report. Nonfarm payrolls have increased every month since October, and a number of other economic indicators also have shown improvement in the past six months. Combined, these signs of steady improvement have put some upward pressure on rates. The yield on the 10 year note climbed as high as 2.32% before settling in at 2.18% (as of 4/2/12). As it appears unlikely that the Federal Reserve will begin a third round of Quantitative Easing, we may see rates drift higher throughout the second quarter of 2012 – but the 10 year note likely will go no higher than 2.35% and FHA rates should remain attractive.
