Mortgage rates are worse this morning.
Mortgage-backed bonds sold off yesterday afternoon, pushing rates higher, as investors pondered the long-term inflationary implications of QE2. The thought pattern is that QE2 will require the Fed to increase the money supply which will lead to greater inflation as the economy improves. I wrote about this in my November 2009 newsletter which you can view HERE.
The markets are currently expecting the Fed to purchase $500 billion in US Treasuries over the next 6 months. Analysts currently have split views on whether or not the next round of quantitative easing will push rates lower. Analysts at Bank of America are calling for long-term yields to decline by over .50% while analysts at Mizuho Securities think the impact will be limited.
Much of the ultimate impact will likely depend on whether or not the economic data over the next few weeks continues to show modest improvements or stagnation. I still believe floating into tomorrow’s announcement is the best course of action although I am more cautious.
Current outlook: cautiously floating until Wednesday-Thursday