I understand that not everyone likes graphs as much as I do. I’m a data dork in that sense. You’ll see here that MBS pricing has dropped below the floor of support that’s kept rates “lower” since the first week in December. At the same time, the 10 Year Treasury yield has jumped up from 3.83% last Thursday to 4.15% this morning. That’s a big jump in only three trading sessions. Remember that rates are really slow to go down and super fast to move up, and we’re seeing that in real time today.
Over the weekend, Jerome Powell was interviewed on 60 Minutes and again made it clear that the Fed is monitoring economic data to determine a course of action regarding interest rates and as of right now has no intentions of cutting until they are confident that inflation is heading sustainably toward their 2.0% target. Though a Fed favorite, Personal Consumption Expenditures, is leading the way lower having averaged only 2.08% over the last eight month and 1.85% over the last six months, the official U.S. Inflation Rate sits at 3.4% still.
One more argument in favor of pausing prior to curtailing rates domestically, the Bank of Japan has signaled that they are planning to end the negative rate policy they’ve been sitting on since 2016. Prior to that, BoJ’s rate was 0% for five years. The Japanese Central Bank hasn’t had a rate over 2.0% since 1994, so a rate hike in Japan is a monumental occasion that will be watched carefully by our own FOMC.
Not a lot of economic news out tis week to push us back lower, unfortunately. We’ll be at the mercy of market sentiment.
