Mortgage rates dove on Friday as the shocking GDP report revealed that the US economy is much worse off than anyone expected. The economy’s growth has barely kept up with population growth over the last two quarters, and, factoring in inflation is practically moving backwards. While the headline 1.3% annual growth in the 2nd quarter was bad, even worse was the revision to the 1st quarter’s figures, which brought that quarter from 1.9% growth to a scant 0.4% growth. Describing this growth as anemic would be an understatement. The resulting surprise drove down stocks and caused Treasury rates to break through recent lows. The 10-year Treasury ended the week yielding just over 2.80%, it’s lowest in over 8 months. Stocks ended their worst week in a long time off over 5% on the week. Meanwhile, Congress and the White House failed again to agree on a plan to raise the debt ceiling.
As stocks slipped yesterday on concerns about the continued failure of leadership to muster sufficient support to pass any bill to address the debt crisis, fixed income prices improved, in spite of weak results on the 7-year note auction. The planned vote in the house on a Republican-sponsored proposal to boost the debt limit and cut spending was postponed, then later postponed again yesterday, as leadership realized it didn’t have enough votes to pass the measure. Mortgage pricing improved by almost 50 basis points on the day. Traders focused in on today’s report on 2nd quarter GDP as the next influential event.