Is it worth the risk to float….

Bonds continue to rally this morning, as they remain above their 200 day moving average.  This move higher is still gaining speed as we have now had two consecutive days with the market closing above the sideways channel that held mortgage rates from improving for months.  This is a very strong technical signal and good news for our housing market.  However, tomorrow’s Bureau of Labor Statistics (BLS) Jobs Report will likely fuel this rally higher or cause bonds to retreat, depending upon the outcome of the report.  A stronger than expected number of job creations will certainly be cause for the market to reconsider their strong path forward.  We will have to wait and see tomorrow morning.
Yields hit a 4-5 month low in many parts of Europe.  This was primarily driven by a low CPI report that is fueling concern over lower inflation numbers.  In fact, the fear is that we will see a global decline in inflation, which could lead to a worldwide recession.  The lack of inflation with evidence of deflation in certain areas is the greatest concern with a Fed rate hike.  Although our economy is currently performing well, a rate hike could cause inflation to slow even more which would slow the economy.  This creates a balancing challenge between the two Fed Mandates of maximum employment at a reasonable rate of inflation.  Even the continued strength of our job market hasn’t increased inflation to acceptable numbers.  However, when inflation does pick up, it could be difficult to slow down if the Fed fails to act ahead of inflation.  It’s a tough position for the Fed to be in.
Now that bonds are above their 200 DMA, there is no immediate need to lock.  However, there is great risk in floating into tomorrow’s BLS Jobs Report.  If you choose to float, you need to feel comfortable absorbing the risk.  There is no way to know which direction the report will move the market.

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