Mortgage bonds improved temporarily yesterday following the announcement from the Federal Reserve. Although almost no economists anticipated either a Fed rate hike or for “Quantitative Tightening” to be announced, the markets celebrated for no obvious reason. The statements by the Fed did seem to support our belief that “Quantitative Tightening” will be put into place at the September Fed meeting. Further, Janet Yellen stated that the Fed would like to continue with at least one more rate hike before the end of 2017. At this point, it seems they will likely try to sneak in a hike at the December meeting. However, it will be data dependent.
Republicans are now looking just to fulfill their promise of repealing and replacing Obamacare with a very “skinny” version of their original plan. This move will end the hopes of significantly benefiting corporate America by reducing the burden many businesses feel by having to provide healthcare to their employees. Further, it maintains taxes on those making more than $250,000 per year will help fund into the healthcare system. It seems to be more of a solution to change the legacy of President Obama by removing his name from the healthcare law. We will keep you posted as this new plan works its way through the system.
Bonds remain in a difficult position. Unless they can make a decisive break above their 200-day moving average, we will maintain our locking bias.