Tuesday, December 14, 2010

Market UpDate and FOMC meeting w/ NO Change to short term Interest Rates

Today’s FOMC meeting has adjourned with no change to key short-term interest rates, as expected. The post meeting statement seemed to be favorable for bonds with points such as the economy not growing fast enough to improve unemployment, business spending has slowed compared to earlier this year and employers unwilling to add payrolls. These all suggest that the economy is growing much slower than the Fed would like, and accordingly they are continuing with their $600 billion Treasury security purchase campaign.

So, bad news about the economy from the Fed is good news for the bond market, correct? Not today. The stock markets have had little reaction to the release and remain near this morning’s levels. However, in keeping pace with the illogic trading patterns of late, the bond market went into selling mode again. The benchmark 10-year Treasury Note’s yield is now 3.39%, leaving the rec ent resistance levels in the dust. This means that the previous ceilings are now levels of support on the yield, which translates into higher mortgage rates. We will certainly see upward revisions to mortgage rates this afternoon. They will likely be around .250 - .375 of a discount point from this morning’s pricing, possibly more if bonds continue to sell into closing.
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