Commentary: The economic calendar offers nothing for investors to chew-on today leaving traders to do little else than take profits and let the dust settle after a massive two-day rally in the mortgage market.
Looking ahead to next week -- Uncle Sam will be in the credit markets from Tuesday through Thursday expecting to borrow $99 billion in the form of 2-, 5- and 7-year notes. Tuesday's 2-year note auction may be a mortgage interest rate unfriendly event - but the remaining two note sales should draw sufficient demand to ultimately be supportive of steady mortgage interest rates.
In terms of economic news -- investors will get a look at the August New Home sales figures, the final guesstimate for second-quarter Gross Domestic Product and the Personal Income and Spending data for August. All three reports are expected to be mortgage interest rate neutral.
I think it is extremely important not to loose sight of the fact fixed income investors live in the future, not in the present. These investors are keenly aware that every move the Fed, Congress and all the other financial powers in the world make from this point forward will be designed to fuel economic growth - even at the expense of sharply higher inflation. Since inflation eats away at investors' profits on long-term fixed-income investments - any increase in inflation pressures begins to diminish the total returns investors were expecting to generate when they initially committed capital to the asset class. It is possible for inflation pressures to swell to a point where it becomes financially compelling for fixed-income investors to redeploy their capital into riskier but potentially higher yielding alternative investment opportunities.
The moral of this story is simple and straightforward - stimulus programs - especially effective stimulus programs - almost always mark the beginning-of-the-end of a move to lower mortgage interest rates. At this juncture, there is nothing currently available to suggest things will be different this time around. Heads up.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
