Monday, March 24, 2014 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
Early this morning the bond and mortgage markets started weaker---about the same price changes that occurred Friday. Markets still focusing on Janet Yellen's remarks last week that the Fed may begin increasing interest rates as early as next Spring, about a year earlier than what was generally thought prior to her comments. Since her statement the debate has intensified between those that say no way the Fed will move that soon and those that concur and even say the Fed is likely to stay too long with low rates that will set off inflation. There are no answers, no consensus.
Even Janet Yellen cannot be sure what lies ahead for the economy. The Fed still holds that growth will occur and unemployment will decline; however the Fed, including Janet Yellen, at times has outwardly worried that the decline in unemployment won't be due to 'good' jobs. Job gains in the food service industry are not jobs that fuel strong economic growth. Investors and businesses were taken aback on her comments, increasing interest rates about a year ahead of what was previously expected; yet even she isn't that convinced; she also went on to say "The general assessment is that even after we've had an accommodative monetary policy for long enough to get the economy back on track in the sense of meeting our objectives, the stance of policy that will be appropriate to accomplish that will be easier or involve somewhat lower than would be normal short-term interest rates." We still hold that the economic outlook isn't as bullish as the Fed and most economists currently think.
Where to we go from here? The 10yr is still holding a key chart resistance at 2.80%, unable to climb above it but equally not finding much lasting support when its rate falls to 2.70%. Since the 23rd of Jan the 10 has found comfort in a 20 bp range between 2.80% and 2.60%. Geo-political issues are a factor but not much; with all that is happening in Russia/US relations the financial markets here and in Europe have yet to be seriously rattled. Technicals for both MBSs are mixed but the balance is tilted slightly to the bearish side. Need to watch how stocks act, lower prices the indexes support the bond and mortgage markets, higher prices take that support away; the Fed comments haven't moved markets but are generating a lot of debate. Wrap a ribbon around the interest rate markets and the package is neutral presently; we could argue for lower rates and higher rates, there is enough to swing either outlook in a big move. Like that teeter-totter, it is in balance.
Keep a strong look at the markets and continue to cautiously float if you do want to take a risk. Remember, if you want to know the benefits of locking your rate today versus floating, simply give me a call at 314-744-7806 or visit me on my website at www.CallTheMoneyMan.com. I have access to real time Wall St. data and instant market alerts with breaking news that I monitor throughout the day to assist us on making the informed decision.
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