Economic Report

Weekly Economic Summary

March 3, 2011
Last week in review(February 21 – 25, 2011)

Middle East:
The unrest in the Middle East drove up oil prices and pushed investors into the safety of bonds which improved home loan rates. To see how those elements impacted home loan rates, let's take a deeper look at each.
First, the global unrest in the Middle East continues to impact the markets. The protests that started a few weeks ago in Tunisia and Egypt have now spread to Bahrain, Yemen and Libya. Libya is of particular concern to the markets since it is the largest holder of oil reserves in Africa.

Oil Prices:
With the thought of oil fields at risk and with no foreseeable resolution, oil spiked as much as $12 a barrel higher last week – climbing over the mark of $100 per barrel. The recent spike in oil has only just begun to translate to pumps across the country, so you can expect to see higher prices in the coming weeks.

Government Bonds:
In addition to higher oil prices, traders are concerned about what might happen. And when traders are uncertain, they tend to move money into the relative safety of bonds, which offer lower returns but also lower risks. This flood of money into bonds – including mortgage bonds – helps prices and home loan rates improve. And sure enough, last week mortgage bonds traded higher, as protests permeated throughout the Middle East.
Those gains in bonds have been limited by the concern of inflation down the road. That's because investors demand a higher yield now to offset the possibility that future inflation will eat into their returns. That was evidenced by the tepid buying demand in last week's Treasury auctions.
The bottom line is that the global situation has been a driving force behind improvement in the bond market and that it may continue to do so in the coming weeks.


Freddy Solis. Capital Region. RealEstate.com Realtors. 703-943-7844 Direct. 703-955-3528 Fax