[ad_1]
Whether we call it a bailout, failure, or fire sale, First Republic Bank was formally absorbed by JPMorgan Chase this morning. Interest rates rose in response, and this can be counterproductive for those who know a thing or two about what drives rates.
In general, something like a bank failure would be good for rates as it should encourage investors to seek safe havens. Bonds are one such haven, and when more investors want to buy them, bond yields (aka rates) go down. So why didn’t that dynamic play out this time?
When it came to First Republic, investors already knew there were no savings. This became quite clear by Tuesday of last week and that is the reason why the rates fell at that time.
There are different levels of “failure” and the resolution arrived today is one of the more palatable versions. In other words, things didn’t end as badly as they could have, so investors were able to lighten up on bonds that had previously been purchased as a safe haven.
The day started on a similar note for rates, but took a turn for the worse after a key economic report on the manufacturing sector came in stronger than expected. In general, strong economic data puts upward pressure on rates.
The average lender increases at least eight percent more for a traditional 30yr fixed.
[ad_2]
Source link
