What's going on and why does it matter?
This is likely to be a big week for the markets as the Fed is scheduled to meet and issue their monetary policy statement on Wednesday. While the market is not expecting the Fed to increase short-term rates, all eyes will be on the Fed's monetary policy statement for clues as to their future plans... especially with regard to their mortgage bond buying program. The Fed has been the biggest buyer of mortgage bonds in the market, and they are scheduled to purchase up to $2.475 billion in 30-yr conventional mortgage bonds today. Mortgage bonds are continuing to trade near their best levels of the year as government bond yields across the world are at record lows. The 10-yr US treasury yield remains below 1.7%, German 10-yr government bond yields are nearly zero percent, and Japanese government bonds yields are negative. Global financial markets have been worried about disappointing economic reports in Europe and Asia, along with Great Britain' s potential exit from the European Union after the vote in Great Britain next week. Mortgage bonds are likely to continue drifting sideways and slightly higher amidst all the market uncertainty.
What should you do about it?
Enjoy the uptick in bond prices, but be prepared to lock quickly if the market changes directions. Keep in mind that mortgage pricing quickly deteriorated the last time mortgage bonds approached these lofty levels.