Rate markets started generally unchanged this morning with no news or
data on the schedule today. After two days of Congressional
testimony Bernanke didn’t generate any market response. Tapering still on the
table but totally data dependent, that sums up all his comments. Bernanke
repeated more than once that the Fed’s plans to reduce monthly buying will
depend on the unfolding economic data. The debate continues; will it be in Sept
or later in the year?
Presently there is high optimism that the economy is improving, as
long as the reported data continues to confirm improvement, the Fed will begin
cutting back. Economic data is always important; after Bernanke said the tapering
will be totally dependent on economic data going forward, the importance of
each report will have additional significance. The most significant monthly
data is the employment report; two weeks from today the July data will be
reported. The June employment data was better than what economists were
expecting, another strong report will likely be the definitive answer as to “when
and if” the Fed will begin tapering. In the meantime look for interest rates to
trade in narrow ranges.
.
The 10 yr. note is
holding in a narrowing range with the key resistance at 2.47% and support at
about 2.58%. Mortgage markets are also holding in tight ranges. Looking at the positive; if the 10 does clear
2.47% on a close, how much lower can rates fall? It is unlikely that rates will
decline much if we do see a rally, at the moment there is no reason for
investors to load up on fixed income investments. Interest rates have little
momentum to decline as the economic outlook remains optimistic. As long as
there is no reason to seek safety into US treasuries we can’t anticipate what
will drive rates substantially lower.
What would it take to
change that outlook? A huge reversal in the stock market, some kind of turmoil
with terrorists, the US increasing its presence in Syria, or anything that
would send fear in investors’ minds. The present level of interest rates is
still historically very low at these levels. All that said, we have to go with
the market action, what traders and investors are actually doing in the market,
and as of now there is no solid demand for treasuries and MBSs.
Contact Specialty Financial Services, Inc., NMLS #:
141636 for a free rate quote today.
- Michael Corboy
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