Anyone reading this is likely aware about the FED’s Taper talk, and why it matters to mortgage rates. I was cautiously optimistic that we would get a break out of our recent bond trading range after the release of today’s Meeting minutes. However, I had locked most of my clients prior to today knowing that whatever move happened would be quite large, and it was simply too risky.
SO- Bernanke and his co-conspirators at the US Federal Reserve they meet once a month and manage the amount of cash that enters the economy. I heard Steve Forbes use the analogy of cash as the fuel that is required for the engine of our economy to have a chance at moving forward- to further extend that metaphor: too much fuel can flood the engine, and not enough fuel can cause an engine stall. The level of FED sponsored support to our economy remains at an unprecedented $85 billion per month injected into our system through systematic bond purchases aka QE3. Not to mix my metaphors here, but another prognosticator that I pay close attention to has also referred to this free money as “crack for the market”, and that our stock and bond markets are now full blown crack addicts (which is hard to deny).
In May of this year, Mr. Bernanke mentioned that since things appeared to be trending to the good, that the FED could start to imagine reducing this unprecedented purchasing plan come September — so long as the economy continued this track. IRONICALLY- the very mention of this possible TAPERING of bond purchasing is what appears to have really slowed our economy. This immediate market freak out in May has also been referred to as the TAPER TANTRUM. Well today was the big day- the day we find out just how much precious crack that pusher Ben would be withholding from our marketplace. Most watchers were expecting a reduction in buying from 85 billion to about 75-70 billion, and that kind of move has been largely priced in since this conversation began a few months back. But what apparently happened is that the FED bankers met and decided to NOT stop with the major bond purchasing.
This of course caused ALL markets to swoon with JOY, as the cash supply firehose stays on full-blast, unabated. Our dear FNMA 30YR bond coupon, which directly creates our Mortgage rate offering erupted for 170 basis points in about 90 minutes. This must be the single biggest positive move this bond has made all year and it feels fantastic!