The RateWatch
 Commentary by Bill Brizendine of Melody Capital MarketsAfter peaking Tuesday afternoon at 4.85%, the yield on the 10-year Treasury began dropping on Wednesday to close Friday at 4.67%, down 11 bps week-to-week. While we at the RateWatch avoid predicting interest rates – even their direction – we do think about them constantly, but never saw this one coming. In advance of last week’s FOMC meeting, inflation, growth, housing and unemployment figures were sending mixed signals to the data-driven Fed. These reports seemed to confirm the belief that a reduction in short term rates was much further down the road than the market seemed to think during the summer bond rally (a change in expectation that was behind the early October run-up in 10-year yields). No one expected the Fed to drop rates last week, but most everyone anticipated a stern warning regarding the need for continued vigilance against inflation to accompany the “no change” announcement. Those willing to predict suggested that bond yields would continue to rise through the end of the year. What we got from the Fed was a “dovish” let’s-have-it-both-ways statement: “inflation pressure [will] continue to moderate over time,” and the economy, “seems likely to expand at a moderate pace.” (Hmmmm . . . sounds like they are declaring a policy victory.) Meanwhile, expect the fixed rate mortgage markets to remain on edge, buffeted about as traders attempt to divine the impact of every new economic report on the Fed’s mood. Download The RateWatch: A one-page analysis of institutional lending rates |