Daily Commentary by Larry Baer: The Federal Reserve is expected to announce a
fresh round of bond buying when they wrap up their monetary policy
deliberations today at 12:30 p.m. ET. The central bank looks almost
certain to continue buying $40 billion per month of mortgage-backed securities
and they are expected to announce their intention to buy an additional $45
billion per month of longer-dated Treasury debt obligations as a replacement
for the current "Operation Twist" stimulus program which expires at
the end of the year. There is little doubt the Fed will continue this new
round of buying until labor market conditions improve substantially - an event
not even a blip on most investors' radars right now.
The likelihood the
Fed will continue their aggressive buying of Treasury debt obligations and
mortgage-backed securities will almost certainly put a ceiling over interest
rates. On the other hand, the rock-bottom yields most of these debt
obligations currently offer suggests investors will not be highly motivated to
push rates much lower than existing levels.
As I have continued
to repeat in this commentary -- if/when a political compromise is reached to
avoid the "fiscal cliff" -- stocks will likely rally at the expense
of rising mortgage interest rates (as long as the deal is something more than a
simple extension of the current deadline). Until/unless a fiscal
agreement is achieved - a primary support for steady to perhaps fractionally
lower mortgage interest rates will remain firmly in place.
The final gavel will
fall on the Treasury Department's auction of $19 billion of 10-year notes at
1:00 p.m. ET this afternoon. Demand from the global community is expected
to be lukewarm for this offering - if so, a soft 10-year note auction has the
potential to put some modest upward pressure on mortgage interest rates.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
