Friday April 14th, 2011 7:05 PM ET
By John Sauro
Bonds Rally
A lower core inflation report by the government today sparked a rally in Bonds despite the rise in stocks.
The 4% Coupon rose 62 basis points to finish the day at $98.44, above resistance at both the 25 and 50 Day Moving Averages, A 22 basis point move typically equates to a .125% move in 30 year fixed mortgage rates. Short covering could also have driven Bond prices higher due to the vacation week.
The long term outlook for mortgage rates is still higher. Don’t be complacent about the present opportunity in interest rates. Inflation will move higher in the future and when it does, so will mortgage rates. That’s why it’s important to monitor this market, be nimble and lock into an interest rate when the short term opportunity arises.
Also, look to lock into a rate with a lender that allows you to re lock into a lower rate should rates fall again.
North Atlantic Mortgage has that type of program.
Jobs
Initial Jobless Claims climbed higher to 412,000 and above the 400,000 level since March 5th. Bonds held their ground as this was a very disappointing number. Job growth is still sluggish. A healthy jobs market is critical to a housing market recovery.
The housing market is responsible for one fifth of the Gross Domestic Product (GDP), yet very little has been done by our government to help the ailing housing market. When are they going to get it?
The Producer Price Index (PPI), measuring prices and inflation at the wholesale level came in at 0.7%, much lower than the expected 1.1%.
The Core PPI, which strips out food and energy, came in at 0.3%, a bit more than the expected 0.2%.
End of QE2
Some Economists believe that without another round of Quantitative Easing (QE3) the markets would falter pretty quickly and the economy would follow in a few months. Then the Treasury bond rates would spike more over fears of a double dip recession and rising deficits. Even if the Fed comes up with QE3, bonds will respond much as they did with QE2. It will be seen as desperate and inflationary and rates will rise sooner and faster. Either way, rising T-Bond rates rise and add pressure to an already weak housing market.
Update on FINREG (Financial Regulation)
Protect your homes value and your right to affordable home financing.
The focus is now on the Dodd-Frank Bill. With implementation a couple of months away, much has to be done to repeal or at least modify language in the Bill.
This Bill is another government power grab and will its unintended consequences will ad further pressure to the real estate market.
Get involved and let you elected officials know your concerns.
Already prepared template letters and contact info for your Congressman and Senator are available at: