Significant Data Improves Rates

This morning after over a week, we finally had some significant economic data, starting with September retail sales and any revisions to the August report.  Every reading came in less than what was anticipated.  The same came in when the September Producer Price Index came in lower than expected.

From the reports, there is no inflation being seen and with the slow retail sales pushed the 10yr note yield down to 2.00% and MBS prices +27 bps on the initial reaction. US stock indexes not much of an initial impact, the two reports seen as keeping the Fed from increasing rates -  investors see that as a positive in this upside down world. Strong economic reports, a drag on stocks, weak news a plus.

Later this morning we had August business inventories and these did come in as expected with no change from July, but sales fell further than anticipated. Another soft report.  Later this afternoon the Fed will release its Beige Book -  the Fed staff’s detailed report from the 12 Fed districts.

After all the data came out and with the initial reaction now subsided, at 10:30AM we see that the 10yr Treasury is at 2.00%, hitting our bottom figure that we have yet to break, and the MBSs are trading at a positive 21BPS from yesterday’s close.  This has resulted in better mortgage rates so far today. I do not feel that the 10yr will break the floor as we need more selling in the equity markets to send additional fear to push more money to safety in treasuries. It will eventually fall below 2.00% but it will require a panic type selling binge kin stocks. That too will happen soon - it will not be long before investors and money managers cannot sweep the economic weakness away. This is the beginning of earnings season - declines in earnings and profits, increasing concerns about corporate debt, will not be denied.

The big question is then should we float or lock?  Even though everything is looking bullish, it is still a risky move and the best bet is still grab this rate as the volatility is still great.  You have to realize that the reward maybe there, but the risks could be too much as rates are like the gas prices, they come down slow, and jump back up again fast.  You be the judge.