The 5.0% coupon has gained 8/32nds on the day currently

The 5.5% coupon has gained 4/32nds

As we discussed yesterday, the market reaction to the FOMC announcement was tepid and Thursday and Friday’s data could give us more direction.

It’s interesting that the data released today and tomorrow correlates directly with the reports.

Market direction will depend on your read of the data, but I maintain my general bearishness, especially after this morning’s data.  I feel that we have clear indications that consumer participation is “trickling up” to its interdependent economic factors.  The consumer drives the economy and one of the key factors that drives the consumer is credit. 

Credit is no longer as available not only because of financial markets, but moreover because of the national retreat of home equity, which had previously allowed consumers to spend more, pay it off, and start spending again.

With respect to rates, we’re nearing the lows of last week, and of course, are in historically low territory.  But it feels like the current market position is a stopping point on our way to somewhere else.  The market is like a dog waiting to see which direction the ball is thrown.  Its gaze is tightly fixed on its target, more than eagerly poised to react to any indication, ready to run as soon as the direction is confirmed.

To extend the metaphor, yesterday’s “juke” by the FOMC was unconvincing.  The dog stayed put.  Now we have made a much more entrapping feint to the opposite direction.  If tomorrow’s economic data is in line with today’s, the dog will be convinced enough to take substantial steps in that direction.  If the data refutes today’s, we will be right back to waiting to see where we stand.  In general, technical factors suggest rates can go higher faster than they can go lower, and the market seems more eager to act on positive information at these levels.

So a short term lock recommendation is anyone’s guess.  When the market is uncertain of the future, a reasonable strength of data will have an uncommonly drastic effect.  Though my personal opinion is that the market has to decline mid to long term, you may wish you had locked today if economic numbers surprise tomorrow.  To take somewhat of a stand, as long as inflation remains a back burner concern and data continues to support my bearishness, I think you’ll have today’s rate available to you 20 days from now.  But as always, the conservative play is to lock when at historical lows.  If I am justified in my cynicism, then, barring unexpected intervention, floating will be the more profitable decision.

It’s a good time to pay attention to the markets.  Keep yourself educated, but form your own opinions as well.  Stay tuned here as well.