Rate Update November 3, 2009

Mortgage Rates are effectively unchanged from yesterday.

Mortgage-backed bonds continue the sideways trading pattern that they’ve been in since mid-October.  During that time mortgage rates have remained consistent.  History tells us that there may be a “break-out” ahead in which we see rates move sharply.

One catalyst that could cause this shift is the Fed.  Speaking of whom they begin day one of their two day monetary policy meeting today.  It will conclude tomorrow with their monetary policy announcement and statement.  It is widely expected that the Fed will leave short-term rates unchanged.  However, some analysts expect that they will shift the wording in their statement to reflect the increased likelihood of rates hikes in the next 6-12 months.  This could put selling pressure on the bond market because it would be viewed as inflationary in nature (otherwise, why would the Fed raise rates?).

We will report back on Thursday with the results.  For now, we will maintain a neutral position with a long-term locking bias.

Current outlook: neutral near-term, locking long-term