U.S. government bonds continued to rally broadly, in what is being called a “relief rally” in response to the Federal Open Market Committee’s (FOMC) decision to not raise short-term interest rates, also known as the Fed Funds Rate, from 0 to .25%. The decision to not lift rates was met with both disdain and approval as a mixed bag of opinions have surrounded this most recent FOMC meeting.

The Fed cited the recent economic events, including China’s slowdown and the overall global market uncertainty as reasons to not lift near term rates. Expectations are growing that the Fed might may wait until 2016 before deciding to move rates, even with the data showing little inflation and an improving job market.

The biggest benefactor of the FOMC’s decision has been short-term interest rates, which are highly sensitive to changes in the Fed’s policy.

Due to the developments over the last two days, we are mildly biased towards floating rates based on the last FOMC policy meeting.

Please remember those who perished in the 9/11 attacks.

Some days are up; some days are down- so goes the global equity markets the last several weeks. One would think that U.S. bonds would be the beneficiary of this volatility and that bond yields would move much lower. However, even with the lowered consumer sentiment reporting this week, and weakening commodity prices, bond yields continue to stay range-bound with the 10 year treasury around 2.18%.

All eyes are on next week’s 2-day Federal Open Market Committee (FOMC) meeting. There are both arguments for and against a rate lift off from zero on short term interest rates. There is no clear sign of what both the FOMC will do with rates or how bonds will respond.

We continue to remain cautious and biased to locking in loans based on so many perceived unknowns.

Another week, another volatile session for both foreign and U.S. equities.

Friday morning saw the Dow Jones Industrial Average down over 300 points on a decent employment report. With Asia’s stock market tumbling, Europe suggesting further stimulus, and the U.S. concerned about increasing interest rates, and a slowing global economy, the question remains as to whether the Federal Reserve will lift short interest rates from zero in September.

Both the U.S. bond and equity markets remain highly volatile. Bonds have only benefited marginally from all of this volatility with the U.S. 10-Year Treasury trading around 2.13%.

With the bond market unable to post any meaningful gains (yields move inverse to price) in the face of extreme global stock market losses, our inclination is to recommend locking in rates at these price levels.

The U.S., European, and Asian equity markets experienced tremendous volatility this past week with the Dow Jones Industrial Average losing more than 1,000 points Monday morning. However, the global markets did rebound during the middle of the week to take back most of the losses suffered Monday.

On Thursday, the Commerce Department reported that GDP expanded at a 3.7% seasonally adjusted annual rate in the Spring. This positive GDP number, along with China priming the monetary pump with its own Quantitative Easing (QE) stimulus program, led the equity markets higher.

Even with the massive volatility surrounding equities and the tame inflation numbers, U.S. bonds did not benefit, with significantly lower yields. With the 10 year U.S.Treasury hovering around 2.18%, we remain slightly biased toward locking as bonds trade between resistance and support levels.

U.S. bonds benefited across the board as the result of a horrible week for the world stock markets. In the U.S., the Dow Jones Industrial Average is down big for the week (over 700 points for the week as of Friday morning). There are several factors that are pressuring stocks: the Chinese economic slow-down, on-going problems in Europe, poor corporate earnings in the U.S., and the precipitous drop in oil and other commodities over the last several months.

U.S. bonds have benefited from the negativity surrounding the global stock market this week with the U.S. 10-year Treasury at 2.05%. Also, the much discussed September rate hike may be getting pushed back to December or beyond as suggested by the release of the Federal Open Market Committee (FOMC) meeting minutes. Some experts are saying that the Federal Reserve waited too long to “lift off short term rates from near zero” and that now with so many other foreign central banks devaluing their currencies and providing their own Quantitative Easing (QE) stimulus programs, the Federal Reserve is stuck. We can only wait and see what will happen at the September Fed meeting.

In the interim, we continue to remain biased toward locking in rates at these lower levels on a case by case basis.

The only big economic news this week was that first-time unemployment benefits fell to a 42-year low further supporting a strengthening US economy.

Interest rates mildly moved down this week in response to a down stock market, but remain range-bound. Looking ahead, most experts feel that interest rates are predicted to creep upward, especially in the event the Federal Reserve increases its interest benchmark (the Feds Fund Rate) in September 2015.

Next week will be interesting with the two-day Federal Open Market Committee (FOMC) convening July 28th and 29th, and 2nd quarter Gross Domestic Product (GDP) growth numbers due out.

With the 10-year U.S. Treasury hovering around 2.26%, our posture remains biased toward locking in loans ahead of the FOMC meeting and GDP growth report. These two events could have major positive or negative implications for interest rates next week.

The U.S. stock market is rallying Friday morning on positive news surrounding the new Greek bailout negotiations. Both bond and stock markets have been roughed up the last few weeks over the ongoing drama surrounding this situation. Quietly, China has sold off violently the past week as well amid fears of a stock market bubble before rallying late in the week due to expanded Chinese Government monetary stimulus. This has further complicated global economic growth concerns, as well as potentially pushed out an increase in the Federal Funds rate to early 2016.

The financials markets of the last several weeks have reminded us that the world is still fragile economically and there are many uncertainties both domestically and abroad that can immediately affect market psychology.

Technically, mortgage bonds have remained below their 200-day moving average even with Greece’s default and a Chinese stock market question, which is a bearish single for bonds. Therefore, we continue to remain biased toward locking due to the poor technical present at the moment.

Mortgage yields and U.S. Treasuries dipped mildly lower on Thursday due to a mixed Jobs Report with 223,000 new jobs created. New job creations were slightly lower than expected, but the overall report was on the positive side. The one positive for bonds was the lack of wage growth.

Greece continues to weigh on the global markets as the Greeks did default this past Tuesday on their government debt. However, fear of other debt defaults spreading to other countries within the European Union does not appear to be present at this time.

Technically, bonds continue to hover near support at 2015 price lows, but, remain on longer-term downtrend. Therefore, we continue to remain biased toward locking in rates.

In closing, we wish everyone a Happy July 4th weekend.