Florida Mortgage Market – Week in Review

by Florida's #1 Mortgage Planner on May 5, 2008

Did you enjoy the wild ride we had last week?  Volatility reentered the market as data and news went both ways providing moves both up and down.  Mortgage backed securities ended the week up 63 basis points, providing a slight tick down in rates.

Those big events I mentioned last week played a huge role in the volatility, with Friday’s jobs data sending bonds into their wildest single day ride in a long time (the candlestick measured about 135 basis points).  But what all happened last week?

As was expected, the Fed dropped rates another .25%, but the policy statement’s wording changed, giving a boost to bonds.  Normally, bonds react negatively to the Fed’s move, causing mortgage rates to tick higher on Fed rate cuts, but this time the Fed stated they were all but guaranteed to stop the “insanity”.  Since that means the Fed is finally facing the facts regarding inflation and changing their stance to a potentially more combative one, bonds moved higher this time.

However, the very next day, the Fed’s face got slapped by the PCE report.  One of the statements the Fed had made Wednesday was “Although readings on core inflation have improved somewhat”, and that is where they were proven wrong by the PCE data.  PCE came ticked higher and beat expectations, even at the core level.  In fact, core inflation rose outside the “comfort zone” again, coming in at 2.1% year over year.  Remember that this is the Fed’s favorite gauge on inflation, so that move had to have stung a bit.  Bonds shrugged off the news for the most part though.

Then came Friday, and its much better than expected report, which sent bonds into oblivion.  While the job market is still shrinking, the loss was much less than expected, and that brought back wage-based inflationary fears.  The market sentiment changed later in the day as the thoughts became more regarding recession, and bonds managed to regain almost all of the lost ground.

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