Good Thursday AM,

As markets continue to digest yesterday’s Fed policy statement and expectation for a slow recovery (which does not currently jive with the better than expected economic data) equities are taking a break with the Dow down almost 300 points. Bonds should be the beneficiary of such movements in equities, but are struggling a bit with the Fed sharing they would keep rates low even during elevated inflation (if we ever get there). Additionally with regard to bonds, it is really about the amount that the Fed is buying that will move the needle. The Fed seems very content to keep the 10-yr in a trading range of between .63 and .73. Today we are right in the middle at .68 (chart below shows how the 10-yr has been pretty steady all summer). Mortgages are a similar story and are basically flat on the day however they’ve recently been forced artificially higher by the adverse market fee for conventional refis.  Interestingly enough, purchase rates are also generally higher than they were in late August, even though Mortgage Bond pricing suggests the opposite should be true.  Lender capacity continues to be the best explanation for such things as there is definitely room in lender margins for lower rates.  More simply put, lenders have more than enough business to efficiently handle at current rates. No reason to move them materially lower until that changes. Not a bad idea to lock as the risk for rates worsening is probably greater than that for improvement.

Please remain safe and healthy. Make today great!