Cautiously Floating Bias

PPI came out this morning and was below expectations in both the headline number, and more importantly for interest rates, core PPI.  The core reading strips out food and energy from the calculation, which are the most volatile components.  The core estimate was .2%, and the actual came in at .1%.  This indicates that inflation is not a threat at this time, which adds fuel to a continuing QE environment.  The PPI is also from the producing perspective, and tomorrow will bring on the Consumer perspective with CPI. mortgage bonds dropped lower yesterday ending at a previous level of support.  But the drop was enough to push interest rates a notch higher.  The PPI figures are bond friendly, and prices are up slightly so far this morning.  Stocks are lower as well, and that is likely due to the anticipate of all the reports over the next few days.  Any big surprises could set up some strong momentum either way.  mortgage bonds are close to the lows of the channel they have been in for the last 45 days, so we can start the day with a cautious floating bias.  But be aware that the economic reports over next few days will potentially bring on some market turbulence.

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