MBA Chart of the Week: U.S. 10-Year Treasury and Dow Jones Industrial Index
The primary impact of Brexit on the U.S. has been the considerable increase in financial market volatility within the past week.
At the beginning of 2016, volatility increased, stock prices dropped and credit spreads widened as investors grappled with the implications of low growth in China and falling oil prices. By comparison, the jump in volatility in markets last week was smaller and equity markets have rebounded more quickly.
Whether the impact of Brexit will be contained to the initial shock of the ‘Vote Leave’ victory or will have a longer-term impact on markets is unclear, as even the terms and conditions of the United Kingdom’s withdrawal from the EU remain to be seen.
The silver lining of global uncertainty for U.S. housing and mortgage markets is the likelihood of continued downward pressure on U.S. Treasury yields. The 10-year has averaged 1.47 percent over the beginning of this week and there is little reason to believe that rates will rebound significantly in the near term.
MBA now predicts that the Fed will hike only once this year, likely in December. If the financial market disruption from Brexit persists, the likelihood of even a December hike would be reduced. We will be updating our forecast in July to reflect a lower rate path.
To view the Chart of the Week, click https://www.mba.org/news-research-and-resources/forecasts-data-and-reports/forecasts-and-commentary/chart-of-the-week.
(Michael Fratantoni is chief economist and senior vice president of research and economics with the Mortgage Bankers Association. He can be reached at mfratantoni@mortgagebankers.org. Lynn Fisher is vice president of research and economics with MBA; she can be reached at lfisher@mba.org. Joel Kan associate vice president of economic forecasting with MBA; he can be reached at jkan@mortgagebankers.org).