07 Apr Lock in at these great rates
In line with expectations, mortgage bonds performed poorly yesterday as a result of the Federal Reserve meeting minutes’ release. Although there was very little surprise in the report, the very thought of delving into the thoughts and words of Fed members tends to scare bond investors. The minutes showed that the Fed is divided, with some members wanting to hike rates soon and others believing the Fed should exercise patience and take a more of a “wait and see” approach. Janet Yellen made it clear in her speech following the March 16th meeting that she is one who believes that rate hikes should be off the table for the near term while we wait for additional signs of economic improvement. Since she is the one in charge, the market is not expecting a hike at the next Fed meeting.
Both mortgage bonds and the 10 Year Treasury Note yields are falling so far this morning. In fact, the 10 YTN yield is now at 1.7%, which is within striking distance of the all-time low of 1.54%. Given the yields offered on other currencies’ equivalents, there is still plenty of room for the US note yield to fall even further and remains as the dominant option. This is a wild time for the interest rate market, with stocks near all-time highs, a stable and strong real estate market, and job growth at unprecedented rates. In many respects, it’s a Goldie Lox scenario that may be too good to hold true for the long term. Therefore, we must keep in mind that times that seem too good to be true can change quickly.
Once again, we are at the top of a trading range. Therefore, the risk of floating is elevated. We only suggest floating if you are able to watch the markets closely. Otherwise, locking in at these incredible rates is a prudent strategy.