Market Information Tuesday 2 July 2024

Bank of America warns in a note on Monday that the lock-in effect keeping U.S. housing subdued could persist for six to eight years. The wide gap between current and effective mortgage rates discourages homeowners from moving. Even if the Fed cuts rates, mortgage rates may not drop significantly. During the pandemic, many owners refinanced to record-low effective rates. As the Fed has raised rates to combat inflation, current mortgage rates have risen. More than half of outstanding mortgages have effective rates of 4% or lower, while the current 30-year fixed rate hovers around 7%.

Markets reacted with relief to the French election results. The victory of the Rassemblement National (RN) in the first round of the French parliamentary elections was smaller than some polls expected and financial markets feared. As a result, investors are relieved by the outcome. Although an absolute majority for the far-right block in the French parliament is still within reach, the second round of elections next Sunday could alter the situation. For French President Emmanuel Macron and his center-right alliance, it was a significant electoral defeat. In consultation with the left-wing coalition, the alliance is now considering which candidates should withdraw to prevent Le Pen’s alliance from achieving an absolute majority of seats.

The Congressional Budget Office (CBO) now estimates the U.S. fiscal 2024 deficit at $1.9 trillion, an increase from the previous estimate of $1.6 trillion in February and the 2023 deficit of $1.7 trillion. Despite being lower than the pandemic-era high of $3 trillion, the 2024 deficit nearly matches Russia’s 2023 GDP, which the World Bank reported at $2 trillion. According to the CBO, part of the increase in the projected deficit is due to emergency spending for Ukraine, Israel, and U.S. allies in Asia. Former New York Fed President Bill Dudley warned that rising interest rates could increase debt service costs, further escalating the deficit. In addition, he states that debt that was issued at lower rates is now being rolled over at higher rates, so debt service costs are increasing more rapidly than total debt.

The 6M Euribor is unchanged at 3.68% compared to previous business day. The 10Y Swap increased with 5 basis points to 2.89% compared to previous business day.

In the attachment, today’s market data on money and capital market rates as well as other rates are presented.