5/20/10

Most rate prices improved today as mortgage bonds continue to benefit from the flight to quality as fear dominates the markets (stocks have erased all gains made this year). Investors who got burned by underestimating the mortgage meltdown don’t want to make the same mistake about the European debt crisis--a crisis that gives more the appearance of being held together by rubber bands and scotch tape in Europe and at risk of spinning out of control and taking the Euro currency with it. This view is sending global stock markets down and bond markets up giving us some of the lowest rates of 2010. Adding insult to injury today, jobless claims came in higher than expected (sending us back to November levels) and Leading Economic Indicators were down (the first time in a year) suggesting the V-shaped recovery may not be the shape of things to come after all. Bonds have broken through all resistance so far as buyers continue to dominate the trade. The irony of this rally is the very source of the fear is what is benefitting the most: the bond markets. Think about that one…