After serious selling yesterday in the bond and stock markets, this morning the 10yr. note climbed to 2.43%, an increase of 25 bps since yesterday's opening.  The DJIA and all global stock markets have taken heavy hits.

For the past six weeks, the one consistency has been on what the Fed will do; Markets wanted clarity.  The result was not what the markets were expecting.

In his press conference, Bernanke spoke about what the Fed will do and when it when it will do it.  The Fed believes the economic outlook is improving and based on the Fed's forecasts of continued slow improvement, the Fed will begin tapering its easing by the end of this year and all easement will be ended by mid 2014.

Markets panicked, interest rates exploded and the US and world stock markets fell.

If the Fed is wrong, Bernanke made it clear that the Fed will continue with its purchasing of MBS's and Treasuries.  Economic data will have added importance now given the definitive comments from the Fed yesterday.  Bernanke said the Fed would not sell its MBS's securities it currently holds (a relief of concerns of more short term increases to mortgage rates).

May existing homes increased 4%.  The June Philly Fed business index improved drastically, but the better data did not generate a positive response.

China appears to be tightening credit by draining reserves to stop predatory lending, resulting in the repurchase rate seeing unprecedented increases.  Manufacturing is shrinking and the importance of China's economy is another reason US stocks are under pressure.

Ignore all of the debate and economic outlooks out of the equation, the focus is on what the markets are doing, and right now, markets are in turmoil and declining.

Forecasts were that the 10yr. note would find some relief at 2.40%.  This morning the note hit 2.47%.  Estimates as to how high the note will go before a rebound is realized are not currently reliable and we look for further volatility through the rest of the day and throughout the week.

The bond and mortgage markets, as well as the stock market are still reacting to the Fed's release yesterday, which has resulted in a lot of emotional tension today.

The overall impact will take longer to judge the Feds ability to control the way the economy will react to its retreat.  Many believe the market is not yet ready to absorb the resulting increase in rates. 

Bernanke has set the unemployment benchmark at 7%, however all hopes are that the Fed will maintain or increase its current stimulus until unemployment holds steady between 5 and 6%.  That mark is unlikely to be witnessed by the current Fed Chairman according to President Obama.

Read more about the Fed release at:

• http://www.nytimes.com/2013/06/20/business/economy/fed-more-optimistic-about-economy-maintains-bond-buying.html?_r=0
•  http://www.federalreserve.gov/newsevents/press/monetary/20130619a.htm

Now is more important than ever to remain in constant contact with your mortgage professional.

- Michael Corboy