Mortgage bonds tanked yesterday following the release of the Fed Meeting Minutes. As feared, the Fed stated that growth was stronger than forecasted. This affirms the path of gradual interest rate hikes and brings an increased fear of more hikes than the three that are planned for 2018. The Fed believes that inflation will reach the 2% target in the medium term. However, they note that there are few, if any, signs of wage pressure inflation. Since there have been increased signs of wage inflation since the last Fed meeting took place, this statement is a bit outdated. Given the news at hand, it is nearly a sure thing that the Fed will hike rates when they next meet in March. The impact of which should already be priced into the market.
Initial Jobless Claims, which measures individuals filing for new Unemployment Benefits, showed that there were 222,000 Claims last week. This was a drop of 7,000 from the prior week and was also 8,000 below estimates of 230,000. Given that a reading of 300,000 new Claims per week represent a strong labor market, it is clear that the Labor Force continues to tighten. Since this was the Sample Week used by the Bureau of Labor Statistics to estimate new jobs created in the month of February, this piece of the puzzle points to a strong number when the report is released on March 9th.
After hitting the top of the trading channel yesterday, bonds traveled down to reach multi-year low prices. This translates to multi-year high mortgage interest rates. Hopefully, bond prices will stabilize soon. This downward channel has been long and painful enough.
We will maintain our locking bias.