No benefit to floating

Mortgage bonds and stocks are both slightly lower so far this morning. Although there are minimal economic reports today, markets are preparing for a slew of data that will be released next week, highlighted by housing news, GDP, Durable Goods and the PCE inflation report. The PCE (Personal Consumption Expenditure) report happens to be the Fed’s favorite gauge of consumer inflation.  Therefore, the results could impact mortgage rates. As long as inflation levels continue to show disappointing results, mortgage bonds could improve further. However, the opposite is also true.

With the increased talk of a Fed rate hike, it’s important to consider how mortgage bonds will react when the Fed finally makes a move.  Historical data encouragingly shows that bonds will likely receive a boost when the Fed makes their next move. This lightens the fear associated with an increasingly likely hike in the near term. However, we must still fear the market’s reaction to the rhetoric in advance of the move, as that generally tends to stimulate panic that drives bond prices lower, temporarily moving interest rate higher.

With bonds still showing limited strength, there is little benefit to float.