Market Comment
Mortgage bond prices finished the week sharply lower which caused rates to surge higher. Market sentiment believes that the economy will expand and cause inflation to rise through deficit spending and Trump rolling back regulations enacted under Obama. Retail sales rose 0.8% versus the expected 0.6% increase. The dollar strengthened when interest rates rose because foreign traders sold local currencies to purchase the dollar in a chase for yield. In addition, the prospect of a Fed rate hike in December pushed the dollar to the strongest level in over a year. Weekly jobless claims were 235K versus the expected 257K. This added to the sentiment that the Fed will hike rates next month and brought the odds north of 90%. Mortgage interest rates finished the week higher by almost a full discount point..
Yellen Fed Chair Yellen indicated last week she intends to stay at the Federal Reserve until her term expires January 2018. There was speculation following the Presidential election that she will leave prior to then. She noted that “the markets try to anticipate what policies congress and the administration will put into effect.” We saw higher debt yields and a stronger dollar the past week as a result. Yellen anticipates an expansionary policy from both political bodies and as a result the possibility of higher inflation. Inflation, real or perceived, erodes the value of fixed income investments and prices generally fall while rates rise. The safe thing to do is to take advantage of mortgage interest rates at these still historically favorable levels and avoid future market volatility.
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