Floating is high risk

In a show of support for St. Patrick’s Day, mortgage bonds are in the green so far this morning.  Stocks, on the other hand, are again suffering losses and seem unable to regain their footing.  The lack of stability in the stock market has helped boost both mortgage bond and 10 Year Treasury Note prices.  In fact, both have broken above their 100 day moving averages and are making runs of their next significant resistance levels.  If they are both able to break their next barriers, interest rates could improve a bit.  However, these are high risk areas that both markets have unsuccessfully attempted to break through several times in the past.  If they are again rejected, we will likely see rates stay within the same trading range they have been playing in for the past few weeks.

The Federal Reserve will conclude their Federal Open Market Committee Meeting (FOMC) tomorrow, with their rate policy announcement expected tomorrow at noon.  There is almost no chance that they will push the Fed Funds rate higher tomorrow.  However, the markets will be listening for any clues as to when that increase can be expected.  Following the release of February’s Job’s Report that was shockingly stronger than expected, the odds of a June rate hike jumped upwards of 80% +.  However, when considering all economic indicators, as well as current levels of inflation, we feel the Fed will continue to exercise patience in their rate hike policy.  However, that remains to be seen and anything can happen.

Floating at this level is highly risky.  History shows that the prudent strategy is to lock when at the top of a range and float when at the bottom.  Since we have not been able to break above these levels is quite some time, chances are we will be pushed lower.  Tomorrow’s Fed Meeting announcement could be the catalyst needed.  However, it could also scare the markets and cause rates to move higher.