This Week: after a serious bout of selling last week in the bond and mortgage markets that jumped mortgage rates up 12 basis points, we look for a little improvement. However, it is unlikely the bearish outlook and technical picture will change. The overwhelming bullish outlook for rates on the QE move has not matched the earlier enthusiasm that drove traders and investors in a buying binge until the details were laid out on Nov 3. What markets were expecting was more Fed buying at the long end of the curve, 10 yr note specifically, the Fed didn't do it. Most of the scheduled Fed treasury buying over the next six months will be at the 5 yr note and 3 yr note area.
This week has a plate full of economic releases after very little economic news last week. Inflation reads on the producer price index and the consumer price index will get a close look from traders. Inflation is one reason the long end of the yield curve ( 10 yr notes, mortgages) are unlikely to experience much in the way of lower rates. The Fed has on many recent occasions made it abundantly clear it wants the level of inflation higher to avoid the potential of the US falling into a Japanese type deflationary economy. Three months ago we warned that the lows in the mortgage interest rates had likely been achieved and so far that has held with the exception of a very brief run when the Fed indicated it was prepared to print more money (ease) on Sept 21st at the conclusion of the FOMC meeting. We continue to believe the lows have been met and that mortgage rates while not likely to spike a lot higher in the next few months, won't decline much from present levels.
