Phil Grossfield's Blog


What Not To Do — Economy Strong Yet Bonds Improve

spiral staircaseWhat Not To Do.  When traveling with your wife and kids and staying at a nice resort with a 2 story suite…and after having a fabulous meal eating wonderful sashimi and sea bass while drinking far too many beverages of different varities, and after crashing only to be woken up at 3a by your wife with instructions to go up the spiral staircase and turn the air-conditioning down, DON’T SLIP ON THE SPIRAL STAIRCASE ON THE WAY BACK DOWN AND SCRAPE UP YOUR ARMS AND SMASH YOUR FEET INTO THE POLES.  I’m just saying…

My Market Update – July 2, 2015

The 30-year Fannie Mae bond is up +38bps since yesterday’s close. Generally a lender’s pricing improves when the bond is being bought, like this morning.

Almost always a strong Jobs Report, meaning the data gives traders a reason to believe the economy is stronger than expected, influences them to invest in stocks and in the process sell off bonds. When bonds are sold off our rates/pricing worsen.  BUT NOT THIS MONTH…the strong Jobs Report this morning resulted in improved rates/pricing!  The reason is that traders are concluding that the strong Jobs Report will influence the Fed to hike interest rates as early as September, maybe even sooner.  In doing so the Fed would be battling rising inflation, the archenemy of bonds.

WARNING.  Although we’re enjoying this morning’s improvement before the long weekend, there are 2 reasons you might want to lock in today.  First, Greece might see relief over the weekend.  If they do, then global markets would be healthier and traders would feel better about investing in stocks. Typically when investors buy stocks then bonds suffer as a result which would cause rates/pricing to worsen.  Second, the new loan level pricing adjustments (LLPAs) go into effect on Monday. That means the Fannie adjustments get worse.  Let me know if you’d care to discuss this or anything else.  HAVE A GREAT LONG WEEKEND!

My Disclaimer

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