Inflation Concerns Subside… For Now

Happy Friday everyone!

Yesterday, we talked about how today was going to be a pivotal time for the tanking MBS market because the Fed was going to release PCE inflation numbers. Treasuries have been rallying and bonds have been taking the biggest hit since the beginning of COVID shutdowns in March. Despite Jerome Powell stating that easy money policies will continue, this rise is due to concerns over rapid inflation coming from great success in the vaccine rollout, the stock market shattering through ceiling after ceiling, unemployment falling, and the housing industry booming. There are a lot of inflationary forces in the market, but we saw this morning that it is not as bad as investors may have guessed. So, inflation for the last year came in between 1.4 and 1.5%, well below the Feds target of 2%. However, months to come will show the impact of our current inflationary situation.

Emergency use of the J&J vaccine, that we talked about yesterday, will be voted on today. If this goes through, the stock market will rally and put upward pressure on mortgage rates.

MBS’ are up 42 bps at this point. They broke below a strong Fibonacci level yesterday and are now above it but it opens the door for them to fall below it again. With the vaccine vote today and general volatility in the MBS and Treasury markets, we are holding a locking bias.

Finish this crazy week off strong everyone!