Rate Update March 18, 2008

Mortgage-backed bonds followed through on the rally yesterday pushing mortgage rates to their lowest levels since the beginning of February. Much of this momentum was created due to a “flight to quality” which is when investors sell stocks and reinvest the capital into the “safe-haven” of the bond market.

The big news of the day is the Fed. They are scheduled to announce their interest rate policy at 2:15 EST. Consensus thus far has been that the Fed will cut short-term rates by .75%. However, some analysts now believe we could see a 1.00% cut to the Federal Funds rate.

Our Fed strategy today:

Upon the announcement we may see mortgage-backed bonds “pop” on the news sending mortgage rates lower in the near-term. But, if you are an avid reader of ‘rate update’ you know why we think a rate cut will hurt mortgage rates in the long-term.

Current Outlook: neutral