Mortgage bonds remain range bound, as investors await the result of the Federal Open Market Committee meeting that is expected at 2:00 pm eastern time today. Investors will be looking for clues to see if the Fed will provide insight as to when we can expect to see a rate cut. Further, they will be looking for clues to see if the Fed now sees a more realistic view of where the US economy is heading in the months to come. As of the last update, the Fed was placing odds of a recession in the 25% range. When you consider that in 2006 the Fed saw the odds of a recession at just 16%, you realize how wrong the Fed has been in the past. I fully believe they are once again missing the boat in their estimates. In 2006, the same reasons the Fed believed a recession would be avoided are in play in the current environment. The lesson to be learned is that when things are so good, people have a harder time seeing what could be around the corner. When in fact, things being too good are generally a sign of weakness to come. Good times can’t last forever.
The summer home buying season continues to show signs of weakness, with purchase mortgage loan applications again falling on a week over week basis. This is the time when people would generally be flocking to get qualified to buy a home. If this trend continues, we can expect to see disappointing housing reports in the months to come. With housing being a shining part of recent economic growth, this is not a good sign.
In the short term, there remains great risk in floating. However, I remain bullish in the longer term.