It’s hard to believe in today’s economic environment, but the overall Bond market, including Mortgage Bonds, are contending with the “I” word this morning…inflation…thanks to Fed member Frederic “Uncle Freddy” Mishkin.
Mishkin appeared on CNBC this morning, saying that “inflation could come to the forefront given all of the government programs”, and “once the economy recovers, liquidity must be taken out of the markets”…meaning, the Fed may need to rapidly hike rates down the road to control the potential of inflation.
Although rates are very attractive now, the picture may be quite different as we head towards the summer. Oil prices may be on the rise as we approach the summer driving season, some of the economic stimulus might begin to take hold, corporate cost-cutting measures could start to bear fruit, and the big enchilada…the Fed will no longer be a buyer of Mortgage Bonds. These are all ingredients in a recipe that will undoubtedly result in significantly higher interest rates this summer. Be sure to explain this to your potential refinance and purchase clients - this wonderful opportunity at hand will not last forever.
Stocks around the globe are under heavy selling pressure on renewed fears of the deepening worldwide economic slump…and this is happening despite better than expected earnings from Google, as well as GE meeting earnings expectations.
The Federal Reserve Bank of New York reported they purchased $19B in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae between January 15 and January 21, bringing its total purchases so far up to $52.6B, or around just 10% of their $500B commitment through the end of June.
Fundamentally, the Fed still has $450B in buying power to deliver to the market, and this is a potentially powerful tool that could help pricing improve in the near term.
