All eyes may well be on what Federal Reserve Chairman Janet Yellen's comments mean for the cost of credit in the United States, but it was a sobering lesson that long-dated interest rates remain flat in the world's biggest economy.
Investors are anxious to know whether a cautious tone struck by Yellen when she spoke before the Economic Club of New York on Tuesday means a hike in the Federal funds rates in April, June or July. Not to mention possibilities in September, November and mid-December like last year.
In the present cycle, the Fed has only raised the Fed funds rate once, last December, by 25 basis points to a range of 0.25% to 0.5%. Before that the last time the Fed hiked rates was on June 29, 2006.
But inspite of some junior traders witnessing their first rate hike while on a desk last year, how significant is a rise anyway?
In the United States, the federal funds rate is the interest rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight, on an uncollateralised basis.
As such, it is a kingpin policy rate, but it is not the be-all-and-end-all. During the Quantitative Easing programme, which began in November 2008 in the wake of the global financial crisis, the Federal Reserve targetted in particular longer-dated maturity US Treasuries. The aim? To batten down long-dated rates and support the at-risk domestic mortgage market.
So witness the significance that on Tuesday, ahead of Yellen's cautious tone on rate hikes, already the 30-year fixed mortgage rate on Zillow Mortgages had dipped by one basis point in the past week, to 3.53%. The 30-year fixed mortgage hovered around 3.55 percent for most of the week before dipping to the current rate.
"Mortgage rates were essentially flat last week,” said Erin Lantz, vice president of mortgages at Zillow. “But volatility could return this week as markets look toward Friday’s monthly jobs report."
Zillow’s real-time mortgage rates are based on thousands of custom mortgage quotes submitted daily to anonymous borrowers on the Zillow Mortgages site and reflect the most recent changes in the market. These are not marketing rates, nor a weekly survey.
The rate for a 15-year fixed home loan is currently 2.73%, Zillow said, while the rate for a 5-1 adjustable-rate mortgage (ARM) is 2.76%.
One thing that is for sure is that ultra-long dated rates remain subdued in the United States as inflation shows no real risk of accelerating and as markets are kept waiting on when the Fed will next hike short-dated rates.
Bourses received well Yellen's speech as it offered enough ammunition for those seeking evidence of economic revival leading to higher interest rates, but not so much that it will hurt those seeking corporate loans.
Elsewhere on the bourses...
RISERS
Keryx Pharmaceuticals (NASDAQ:KERX) shares jumped by 8.6% to $4.94 after the drug maker reported a successful late stage clinical trial for its drug to treat iron deficiency anemia in certain kidney disease patients.
Apple (NASDAQ:AAPL) shares gained 2.4% to $107.70 after news that Apple no longer faces legal action from the Justice Department. Authorities said they were successful in unlocking an iPhone belonging to one of the San Bernardino shooters without the company's assistance.
Yahoo (NASDAQ:YHOO) shares rose 3.1% to $36.32 after Yahoo gave possible suitors until April 11 to submit bids for its assets, according to the Wall Street Journal. Significantly, Yahoo is said to be offering both the core web business and its stakes in Alibaba and Yahoo Japan.
FALLERS
Affymetrix (NASDAQ:AFFX) shares were 0.2% lower at $14.07 after Origin Technologies withdrew its $17 per share offer for Affymetrix when the maker of gene-sequencing products rejected its bid. Affymetrix already has a deal in place to be acquired by Thermo Fisher Scientific, and said there is too much risk in the Origin deal despite a price that's three dollars per share higher. Origin – which is owned by former Affymetrix employees, said it was disappointed and that it disagreed with that assessment of perceived risks.
Wells Fargo (NYSE:WFC) may have seen Warren Buffett's Berkshire Hathaway increase its ownership stake in the bank to 10%, according to an SEC filing, but it wasn't a large enough increase to give the bank's shares much cheer. They were down 1.2% at $48.11.
SunEdison (NYSE:SUNE) shares slammed 56% lower to $0.55 after the company was revealed to face an SEC probe over its liquidity disclosures to investors, according to the Wall Street Journal. The paper said the solar power company is being investigated over whether it overstated its liquidity in a disclosure to investors last fall. In a related story, SunEdison subsidiary Terraform Global said the filing of its annual report will be delayed beyond March 31, because of internal control weaknesses related to SunEdison's management services. Proactive Investors reported on Tuesday Terraform Global indicated the group faces a "substantial risk" of bankruptcy, according to Wall Street Journal reports.