Rate Update July 22, 2009

Sometimes words can be louder than actions.  As we expected in yesterday’s ‘rate update’ mortgage rates have improved modestly this morning thanks to Ben Bernanke’s assurances that the Fed has the tools to curb future inflation (even though no action has been taken thus far).

We pointed out earlier in the month the importance of the financial sector in this 2nd-quarter earnings season.  This morning Morgan Stanley & Wells Fargo reported earnings.  Morgan Stanley reported a 3rd straight quarterly loss and Wells Fargo provided weak guidance for the second half of the year.  These two reports are weighing on stocks which should help mortgage rates.

Given that mortgage-backed bonds rallied sharply yesterday we may see traders pull profits off the table which would cause rates to reverse back higher.  For now mortgage rates are extremely attractive but we could see them go a touch lower.  We are shifting to a neutral position.

Current Outlook: neutral