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This is why Trump’s election is causing the recent uptick in interest rates

And it's not likely to stop anytime soon

On November 8th, voters determined that president-elect Donald Trump would be the next president to take office. Since then, several financial markets shifted dramatically.

In fact, in the aftermath of Trump’s victory, the stock market rose sharply, reaching record highs late last week.

One possible explanation is the promise from Trump to grow the country's economy via higher deficit spending to fund infrastructure projects. This expectation was recently solidifed in comments today from Steven Mnuchin, a member of the team’s executive committee.

But the stock market isn’t the only thing that’s on the rise since Trump won; mortgage interest rates are skyrocketing as well. According to data provided by Zillow, the 30-year fixed mortgage interest rate spiked in the aftermath of Trump’s election, rising from 3.38% on Tuesday to 3.8% on Monday morning.

Mortgage product rates reached new highs in the latest Mortgage Bankers Association Weekly Mortgage Applications Survey for the week ending Nov. 11.

And what’s more, the 10-year Treasury yield also continues to increase, which mortgage interest rates usually follow; therefore rates more than likely have not seen an end to their upward climb.

yield

This is good news for many financial institutions, according to an article by Patti Domm for CNBC.

From the article:

“Before the fair value was closer to 1.50 on the 10-year and now the fair value is 2.50 and we basically got to 2.30 overnight. We went from a world starving for yield and people chasing bond markets to very low rates, which was wrong,” said [Nomura head of rate strategy George] Goncalves. “Now you could get upside of 25 basis points and you could get 25 basis points downside.”

In fact, these recent developments lead even some Fed officials to agree that the traditional “lower for longer” theme of the last few years will need to be adjusted. Mark Cabana, head of U.S. short rate strategy at Bank of America Merrill Lynch explains:

From the article:

Cabana said he now believes that the Fed's forecast for one hike this year and two next year may actually work out, as opposed to overly optimistic forecasts the Fed has repeatedly pared back. He said Bof A economists have pared back their growth forecast slightly to 1.9 percent for next year based on the uncertainty around a Trump presidency.

Other housing experts presented a divided opinion on the effect that Trump’s policies will bring to the economy and housing market.

The first week, however, has been positive.

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