Thanks to the Fed, the market got a “twist” last week, but it’s still unclear if this new development will be cause for alarm. After last week’s two-day meeting of the FOMC, they announced plans for the highly anticipated “Operation Twist,” in which the Fed sells its short-term securities and notes holdings, then buys longer-term notes and bonds in an effort to lower longer-term rates further.
But Operation Twist had some notable surprises, including a funding requirement that was larger than anticipated, clocking in at $400 billion. And how will Operation Twist affect home loan rates? The Fed’s statement that there are “significant risks” to the downside for the U.S. economy has amplified criticism, doubt, and fear. And it’s worth noting that even if bonds improve, it doesn’t mean that home loan rates will become more favorable. Because there’s such a high volume of consumers seeking to refinance or buy a home and take advantage of the current low rates, lenders have found themselves with a backlog of work. Translation? Lenders might not pass along all the current bond market gains into their future rates.