Very cautiously floating

Mortgage bonds are higher so far this morning, and the stock market is lower.  Yesterday’s Fed Meeting Minutes were far more dovish than expected, which helped push bond prices positive yesterday afternoon.  In the Fed’s duel mandate of promoting maximum employment while keeping prices stable, the challenge is now focused on actually stimulating more inflation.  This is accomplished through Fed stimulus, such as Quantitative Easing and low short term interest rates.  One would assume that after three rounds of funding Quantitative Easing with printed money, the Fed would have created more inflation than what would be considered healthy.  However, inflation is still dangerously low.  It will be interesting to see how they approach this problem from here.  Could we see QE4?  It’s a precarious situation that could have major implications down the road.

Initial Unemployment Claims for last week were reported at 300,000.  This is the lowest level seen in nearly seven years, and down from the prior week’s 332,000.  This means that fewer people are filing for unemployment benefits.  Now whether or not this translates to more jobs being created or not is yet to be seen.  However, it certainly does indicate that our employment market is improving.  Normally, mortgage backed securities would react negatively to such a strong report.  But so far today, that hasn’t been the case.

Mortgage bonds are now nearing the top of a short term trading range.  Generally speaking, you want to lock when at the top and float when near the bottom.  We can carefully float at the moment.  However, watch closely as we near the top.  The market can reverse quickly, which would change our stance to a locking.