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Monday, January 25, 2016

Mortgage Bond Market Analysis - Fed Interest Rate Decision

Happy Monday.  I hope your weather is better than those on the East coast.  If you like football and you're a Bronco or Panther fan, you've got almost two weeks of build-up until these two play each other in the Super Bowl.  I'm looking forward to a good game and some entertaining commercials.  If you are just interested (pun intended) in rates, this is a big week with the Fed Interest Rate decision coming out on Wednesday afternoon (about 2:15 EST).

There is no data out today and with weakness in the stock market, the FNMA benchmark bond is seeing some support and is currently up 15 basis points after losing 13 on Friday.  I'm switching my recommendation to floating with caution.  Tomorrow's data includes Consumer Confidence, Richmond Fed Manufacturing Index and the Case-Schiller Home Price Indicies.  My guess is that none of these will show a lot of strength.  We also have a 2 year T-note auction tomorrow afternoon.  As the Fed discusses what they will do with regard to rates, I think they will recognize how much the stock market has sold off since they raised rates in December.  With the erosion of wealth that has taken place, the economy is adversely impacted and the Fed won't like this.  My bet is that the Fed won't do anything this Wednesday and they might even say things to try to calm the stock market.  If they do this, we could see a bit of a rally in equities with bonds getting the short end of the stick.  If this happens, you need to be ready to act VERY quickly with regards to locking so that you minimize your loss.  Locking ahead of the Fed interest rate decision wouldn't be a bad thing.

In addition to some relatively important economic data (Chicago PMI, GDP, New Home Sales, Jobless Claims, etc), there are two more bond auctions this week after tomorrow.  All of these things will definitely influence what rates do but the Fed decision on rates and what they say will probably have the biggest influence.  I can be reached at 702-812-1214, 801-853-8720 or if I can help you with a client, mortgage questions or interest rate questions.  Make it a great day.

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