Continuing a locking bias

The Consumer Price Index for February was released this morning, showing that inflation is still virtually non-existent.  CPI showed a month over month increase of just 0.1%, which was in line with estimates.  With an annual increase of just 1.6%, inflation is still far below the Federal Reserve’s target of 2%.  Housing starts were reported to be 907,000 new homes in the month of February.  This was virtually unchanged from last month’s upwardly revised figure, which shows there was no real growth from January to February in the number of new homes under construction.

The real significant news of the day was Russia taking permanent control over Crimea after a controversial vote gave Russia the power to take control of this previously leaderless section of the Ukraine.  Russia President Vladimir Putin signed an annexation to make Crimea a part of Russia, and later justified the action in what may be one of his most important speeches in his presidency.    He also made it clear that those individuals who believe his ambitions are for more than just Crimea, or to split the Ukraine, are unfounded.  This seemed to have calmed the markets, for now.  This situation is fluid to say the least.  Only time will tell if his remarks regarding his overall intentions were truthful.  History can be a great predictor of future behavior.  With that in mind, we may not have seen the end of this situation.

The Fed Minutes will be released tomorrow.  As we know from history, this is not typically good for mortgage bonds.  Withmortgage bonds not showing any strength following the release of a tame inflation report, we will continue with our locking bias.