The initial reaction to the Fed's QE3 announcement in mid-September was fairly encouraging. Unfortunately, only a few weeks later, things don't look quite as promising. Agency MBS yields have rebounded, reversing much of the original decline. Mortgage interest rates are still slightly lower, but are rising again. Under those circumstances, we suspect that the surge in mortgage refinancing applications will prove to be short-lived. Admittedly, based on TIPS yields, most of the decline in real interest rates has been sustained, but stock markets have weakened.
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