Low Rates and Weak Dollar Contribute to Strong Markets

Posted on August 13th, 2020

Continued low interest rates drove mortgage rates to their lowest levels ever, pushing the average 30- year fixed conforming rate to 2.99% in July as reported by Freddie Mac. Historic low mortgage rates helped buffer for the housing market, where continued high unemployment is expected to hinder loan approvals.

U.S. government bond yields fell across all maturities in July, with the benchmark 10-year Treasury yield reaching 0.55% and the 30-year Treasury yield falling to 1.20%. Economists view the higher yielding long-term bonds as a normal yield curve, indicating some inflationary expectations and future economic growth.

The dollar also tumbled in July, and the combination of the weak dollar and low interest rate environment have boosted profits for large U.S. multinationals, whose products and services became more competitive as their earnings are primarily driven in the overseas market.

This contributed to the stock market advance in July — led by the technology sector — which has remained resilient since the onset of the pandemic. The rebound in stocks from the lows of March, when the COVID-19 pandemic became official, has exceeded the expectations of both analysts and economists.

Sources: Freddie Mac, Bloomberg, U.S. Treasury, Reuters, FRED