If you choose to float, watch the market closely

Durable Goods Orders for the month of September were reported this morning to be -1.2%, which was below the market’s expectations.  Year over year, orders are down 3%.  In addition, last month’s already weak report was revised significantly lower.  This actually makes this month’s report appear stronger than it would have shown had last month’s figure not been revised lower.  With oil prices continuing lower, many economists expected the price savings at the pump to strengthen Durable Goods orders.  However, that clearly isn’t the case.  The savings at the pump just aren’t significant enough to the average family to justify purchasing higher dollar items.

Mortgage bonds are currently testing the top of the trading range that they have been stuck within for nearly five weeks.  A break above the resistance that has capped bonds could be a significant move for the market.  That would add downward pressure to mortgage interest rates as we head into the cold winter months.  With that, we could see additional home purchasing activity that would otherwise not happen.  The key may lie in tomorrow’s Federal Reserve interest rate decision.  We by no means anticipate a rate increase at this time.  If the Fed delivers a pessimistic outlook on the current and near-term state of the US economy, that could provide the catalyst needed for rates to make a move lower.

With bonds testing the ceiling, there is no need to immediately lock in a rate.  However, if you choose to float, do so only if you are watching the market closely.  Sentiment can quickly reverse and often does.