08 Apr It’s better to be locked wishing you were floating, than floating wishing you were locked
Mortgage bonds have still not been able to break above the current ceiling of resistance to set new multi-year highs. However, they are still within a whisker and continue to try. It could take a more significant economic event to trigger a rally strong enough to breach this level. Oil prices are pointed higher in premarket trading this morning, signaling a strong day for the US stock market. That will add a strong headwind for the bond market and any significant improvement to the APR of interest rates unlikely today. As long as bond prices are able to make it through the day without a dramatic fall, we will be in good shape heading into next week.
New York Fed President, and current voting member, William Duffy said this morning that he believes inflation will fall short of the Fed’s 2% target rate. In addition, he sees several sectors of the US economy softening. His opinions seem to fall in line with Janet Yellen’s. Both believe that the Fed should maintain a cautious and gradual approach to hiking short term interest rates. With inflation pressures low, it seems the Fed can continue their mission of improving the US economy with continued low rates a little longer. However, history shows that the Fed is terrible at timing inflation. By the time they see inflation reaching their target, the momentum could be too strong to slow with mild rate hikes. That would lead to excessively higher interest rates, which could hurt many US consumers in the long run.
Until bonds show the strength to make a run above current overhead resistance, there is little benefit in floating. Therefore, we will maintain our locking bias. Interest rates are incredibly low right now. Missing this opportunity in hopes of a lower rate could be greatly regretted.