Be cautious in floating

After a rough week, mortgage bonds are improving a bit this morning. Wednesday’s Federal Reserve interest rate hike took its toll on the bond market. However, given that a rate hike was highly anticipated, most the hits should have already been baked into the price prior to the announcement.  We anticipated a high level of volatility, however the markets reactions were a bit beyond our expectations. Although rates took a more significant hit than expected, it provides more room for improvement if bonds can break above the level of overhead resistance they are currently facing. Bonds already challenged that level once today and were pushed back lower. However, the day is still early. We anticipate another challenge here shortly. Hopefully, this time they will be successful.

Today is a relatively quiet news day, so bonds will again trade based on the fundamentals of the markets.  Given this morning’s bond market strength, today is shaping up to be a good one for mortgage bonds. The news calendar heats up as the week moves on, with a report on consumer inflation due on Wednesday. Given the recent hype about future inflation because of President Elect Trump’s economic policies, markets will be closely watching the results of the Personal Consumption Expenditures (PCE) report. This also happens to be the Fed’s favorite gauge of inflation, so future rate hikes could be impacted by the release.

Although there is not a need to immediately rush to lock, be cautious in floating. Rates are still on an upward trend higher and recent improvements have not been sustainable.