Rate Update June 12, 2008

Rates are effectively unchanged this morning. However, mortgage-backed bonds have come under selling pressure which could pressure rates slightly higher later on today.

What is pressuring bonds?

*This morning’s retail sales report indicated that consumer spending grew twice as fast as economists had expected. This good news for our economy is helping stocks this morning which is creating selling pressure in the bond market.

*Second, Fed member Charlie Plosser said yesterday, “Monetary policy is quite accommodative right now, inflation is on everybody’s mind…We have to take appropriate steps to do something about that.” His comments are further sounding alarms regarding inflation.

From a technical standpoint we are testing multi-month lows on bond prices. We may see a bounce off these lows which would help rates move lower.

Current Outlook: neutral