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Interest Rates Wreak Havoc With Investors, Home Buyers

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Moving on not-quite-horrible jobs news on Friday, September 3, when the monthly jobs report reflected a loss of 54,000 in August, mortgage rates ticked up – 5 basis points for an average 30-year fixed mortgage, to 4.58%, and 1 basis point for an average 15-year fixed to 4.06%. It seems that the bad news was actually good news, in that 114,000 jobs that went away in August belonged mainly to temporary census workers – meaning that the economy actually added 67,000 private-sector jobs. Hence the jump in rates.

As rates edged upward for mortgages, and the news from August was deemed somehow positive since it wasn’t as negative as feared, investors began to sell off Treasury securities. Since Treasury and mortgage rates affect one another, it remains to be seen whether mortgage rates will continue to trend upward or whether they will bounce up and down for a while.

One thing that’s not bouncing, however, is morale among investors dependent, or partially dependent, on interest rates for income. While those who owe are feeling some relief as they refinance – whether homeowners or businesses – retirees and others who depend on the income from savings, T-bills, and other forms of investment that rely on interest are hurting, to the point that the money on deposit in U.S. bank branches is falling.

According to a New York Times article, people who have saved for years, planning to retire on the interest from what they’ve put away, are having to put off retirement or even go back to work. Those who were using interest payments to settle bills are finding that they may have to dip into their principal, or perhaps find another source of income. And retirees who are already out of the job market are finding themselves punished by rates so low that they may have to go back to work – if they’re able.

Disgusted with bank rates, many are turning to Treasuries, where the constant inflow of money has driven down those rates too. Municipals are up, too; the entry of Goldman, Sachs into the retail bond market through a deal with Incapital may have come at just the right time, as investors are desperately seeking other investments with higher yields but not the perceived high risks of the stock market. Corporate bonds – higher risks but slightly higher returns – are also doing well, even though many corporations don’t even need the money; they’re issuing bonds because the rates are so low and are then sitting on the cash.

Some investors, and funds – particularly pension funds, says Ben Warwick of Sovereign Wealth Management, are checking out emerging markets debt – again, a higher-risk alternative but with the potential for higher returns. And last but not least, some investors are being driven back into the arms of junk bonds, with the high-yield junk bond market issuing the most bonds since 1995.