Florida Mortgage Market – Morning Update

by Florida's #1 Mortgage Planner on May 1, 2008

Locking Stance:  LOCKING     Mortgage Bonds:  +22bp

Mortgage bonds had a great reaction to yesterday’s news that the Fed will likely stop cutting rates (it’s about time).  They ended the day up 43bp.  They are up again this morning, though the data released may overtake the markets.

Bonds are higher despite the inflation climbing, which usually sends bonds lower.  One reason why is that it solidifies the Fed’s new stance, though I feel they cut rates too much already.  Other reasons bonds are higher is that Initial Jobless Claims was more than expected, in fact, reaching a 19-month high, and personal income was lower than expected.  Both these numbers indicate lower wage-based inflationary risks.

Again, the PCE (Fed’s favorite gauge on inflation) was higher than expected, even at the core level.  Year over year inflation based on PCE creeped up to 2.1%, and will likely go higher, so bonds will be facing some pressure.  Personal spending was also greater than expected, which means people have not adjusted their spending habits much, yet.

Bonds have broken several layers of resistance with this move.  The reason I am going back to a locking stance this morning is due to inflation fears overcoming the recent move and bonds are already off their highs today.  Bonds are approaching an overbought state, adding to the risks of a move lower.  If the 25-day moving average manages to become support, I will change my stance.  For now, enjoy the gains of yesterday, and I suggest locking loans at this level to play it safe.

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