The recent decline in rates is built on the view that the softer economic outlook will keep the Fed from increasing interest rates until at least the 1st Q of 2012. The Fed is unlikely to increase rates with little inflationary fears now, but does that in itself justify present low interest rates? The recent decline is mostly a safety move; with equity markets not advancing, commodity price increases are over for the moment, and borrowing demand very weak. Every technical indicator we use in our near term forecasting is bullish, from a trading perspective we are bullish, from a fundamental longer outlook we are not so optimistic. We expect the end is closing in on these low levels, that said we are not expecting a rapid increase in rates—-a slow grind higher. For now take advantage of the gifts mortgage rates are providing.
MARKET WRAP: Mortgage Bonds fell for the 5th straight this week on positive economic reports, supply issues next week, inflation fears and a fall in the unemployment rate. The 4% coupon close to 200bp this week finishing at 99.62 down 47bp. Stocks managed to put up gains this week with the Dow rising 2.3% to 12092.15, the S&P 500 up 2.7% to 1,310.87 while the Nasdaq rose 3.1% to end the week at 2,769.30. Oil finished at $89.03/barrel falling 0.4% for the week. Next week’s economic calendar is extremely light with just weekly claims on Thursday and Consumer Sentiment on Friday. The Treasury will sell $72B in 3 and 10 year notes along with 30 year Bonds next week. Have a great weekend!