04 Aug Very risky to float
Mortgage bonds received an unexpected gift this morning from the Bank of England. They cut interest rates by ¼% for the first time in over seven years. They also jumped back on the Quantitative Easing bandwagon by added an additional $60 billion to their bond buying program. Further, they added a corporate bond buying program of an additional $10 billion. As a result, their currency is getting ‘pounded’ once again, continuing the losses that resulted after the Brexit happened last June. By taking a lot of supply off the market, they are essentially pushing many investors out of the British market in search of higher returns elsewhere. Since US bonds are considered a safe investment worldwide, our bond prices are shooting higher, which lowers interest rates here at home.
The Bureau of Labor Statistics (BLS) jobs report for the month of July is due out tomorrow morning at 6:30 am MST. Current estimates stand near the 185,000 mark. Predicting the markets’ reactions to this report each month is a difficult task. Given the blockbuster month reported for the month of June, it seems unlikely to see another insanely strong report this month. If it is, however, then we need to consider the likely impact to mortgage interest rates. With the Bank of England’s rate drop helping to add downward pressure to mortgage interest rates, and considering the strength of support below, it seems that the risk vs reward tradeoff could favor taking a risk of floating into tomorrow’s report.
If you choose to float, remember that markets are difficult to predict and rates could worsen. Further, we could see bond holders take some chips off the table in late day trading today. Be careful and watch the markets closely.