The Mortgage Man

Get more out of your mortgage experience!

Tuesday June 10, 2008

Mortgage Bonds are trading at their lowest levels in 3 months.

Wow, what a ride. We get our housing report yesterday showing the first positive figures in 5 consecutive quarters, then last night, Ben Bernanke begins sounding the alarm about inflation and traders don’t like it one bit.

As of this posting, mortgage bonds are trading at $98.03, breaking through a support level at $98.15 and trading at the lowest level since March 10th. Bernanke expressed concerns of inflation largely fueled by the skyrocketing energy prices. He even hinted at additional fed funds rate drops in the near future.

This brings up an interesting question of the chicken or the egg, which came first? If crude oil prices are tied to the US dollar, and the dollar is weakened in part by the lowering of the cost to borrow, then is it possible that raising (rather than lowering) the fed funds rate may give a boost to the value of the dollar, thereby forcing oil prices down as the dollar gains strength against other currencies (particularly in India and China where most of our competition lies for purchasing oil)?

A question that I am not equipped to answer, but one that warrants discussion nonetheless. If you have a loan in process, it would be wise to lock today based on continued uncertainty and weakness in the market.

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