Mel's Blog

Good news for bonds this morning, as consumer inflation appears to be moderating.  The Core Personal Consumption Expenditure Index (PCE) was reported unchanged for the month of March, bringing the year-over-year core inflation level down to 2.1% and much closer to the Fed's target zone of 1 to 2%. 

"I get no respect"...Rodney Dangerfield.  The PCE Report doesn't get much respect either as the media is still somewhat ignorant to the importance of this number and it's affect on Fed monetary policy. The PCE is the Fed's favorite gauge of consumer inflation...and this number has to make the Fed smile, since the Fed wants core inflation under 2% on a year over year basis. 

The US savings rate improved to minus 0.8% from minus 1.2% a month earlier.  While the number remains negative, this is the highest and best reading since March of 2006. The Chicago Purchasing Manager’s Index (PMI) was reported at 52.9, which was lower than expectations of 55.0.  Readings above 50 indicate economic expansion while those below 50 indicate contraction.   So the economy appears to still be expanding, but at a snails pace. 

Mortgage Bonds are attempting to rebound higher after trading down near support at the 200-day Moving Average last week.  This morning’s strength has now pushed the Bond right up against resistance at the 25-day MA.  With the high-impact monthly Jobs Report arriving this Friday, we may see bonds move in a more sideways pattern beneath the strong layer of resistance overhead.  

If you followed my advice on Friday and floated new loans into this morning, you again benefited from better pricing.  I will continue to advise floating, but remain more cautious as prices will now have overhead resistance to contend with.  Later in the week, I will give my strategy on how to play Friday's important jobs release.