One economist expects that there could be some temporary volatility related to and ahead of the Aug. 2 deadline to increase the U.S. debt ceiling, and mortgage market participants might want to have some contingency plans for it.
Yahoo Finance economist Daniel Gross told this publication that the short-term market jolt this spring after Standard & Poor’s shifted its outlook for the U.S. debt rating to negative due to the United States' increased debt-load is an example of the kind of volatility that could recur due to uncertainty about the issue.
For example, interest rates could go back up during a period of volatility and the market for Fannie Mae and Freddie Mac securities could be jolted given their government ties, he said.
“Say you were trying to line up a warehouse line and there were problems in the Treasury market, you would find it difficult,” he noted.
However, “I don’t think it’s likely there will be a downgrade [of U.S. debt],” Gross said. “I think it’s likely that there’s going to be some deal and the debt ceiling will be raised.” But until a decision is reached, associated uncertainties are likely to make market volatility more likely, he said.
