Mortgage Bond Market Analysis - I'm Back

My internet has been restored which means the excitement of the gory details of the bond market can be uncovered in my posts.  Like your favorite sport or tv show when it comes back in season - my post is back and you can rest easy - even if the bond market isn't.  This morning we have another disconnect in the market:  the Conference Board's Consumer confidence reading blew away expectations of 95 with a 102.9 vs. previous month's of 92.6 so you would think that CONSUMERS with all of this confidence they have would CONSUME.  But you would be wrong!!  Here's the disconnect:  Durable Goods orders came in at -3.4 vs. expectations of +.5 and previous of -2.1.  If you take transportation out of the equation, it came in -.8 vs. expectations of +.6 and previous of -1.3.  This is madness, madness I say.  Where is all of the consumption?  How can consumers say they are so confident and then not consume?

My answer to this question is that I think they are confident that jobs are coming back (the last two weeks of jobless claims came in north of the 300 threshold so whatever) and the new jobs will then translate into better durable goods numbers and CPI, etc.  On January 16th when the FNMA benchmark bond tumbled 92 basis points, it was driven by the Michigan Consumer Sentiment Index that came in 4.6 points above expectations at 98.2 yet today's consumer confidence reading isn't having nearly the same impact.  Maybe it's the "Fool me once, shame on you, fool me twice shame on me" phenomena that is at play here.  At any rate, the benchmark bond, while 10 basis points off the morning high, is up 22 basis points this morning.  Here's a snapshot of the chart:

You know what tomorrow is.  Most importantly, it's hump day - YEAH!!  It is also the day we get the Fed interest rate decision.  I don't expect anything to happen with this.  Based on previous comments from various Fed talking heads, they won't start raising rates until much later in the year and there are a few that don't think they should raise rates until 2016.  Keep in mind that the Fed Funds rate is an overnight (extremely short-term) rate and doesn't move mortgage rates in and of itself.  What an increase to this rate does do is signify to investors that the economy is improving and there may be inflation on the horizon - bonds aren't good when inflation is present because it eats away at the return here as stocks typically go along for the ride.  Investors typically sell of bonds which drives prices down and interest rates up, right along with the Fed Funds rate.  It's like magic.

As always, I'm here to help in anyway I can, even if it's only to provide a ray of sunshine to your morning.  If you want to provide a ray of sunshine to my morning, feel free to refer your next client who needs a mortgage to me; I can be reached at 702-812-1214.  For now, I'd float with caution and, as always, be judicious in watching the market (which translates into - if your not using me for your client's mortgage, you need to hope the loan officer who is handling the transaction follows the mortgage bond market like I do) and be ready to lock quickly if things change.  Make it a great day.