Monday the bond market was quiet, Tuesday it got worse as the election went on. The bond market and stock market were watching the election and positioning themselves just in case!! Wednesday the stock market dropped quickly and the bond market got better - therefore mortgage interest rates improved!
Wednesday's reaction is more than likely a concern that there is fiscal uncertainty in Washington DC. At the beginning on 2013 there is a series of tax cuts worth billions of dollars that will expire for U.S. taxpayers. There are spending cuts as part of last year's budget negotiations that will hit the economy. Analysts worry that the rising taxes and cutting spending will push the U.S. into a recession.
Economic uncertainty usually helps lower mortgage rates and we saw that on Wednesday. Investors are jumping into mortgage-backed bonds as they are relatively safe, that helps lower mortgage interest rates.
There is also more concern about the European economy. EU forecasts for growth in Europe was downgraded for the next two years. That also helped the bond market Wednesday.