Mortgage bonds and long-term Treasuries ended the week unchanged after a volatile week of trading. Thursday saw a strong rise in equities with the House passing its tax reform bill. The next step is the Senate where it will meet some resistance from Republicans based on the current iteration of the tax reform bill. However, for the moment, Mr. Market likes what it sees.
Inflation remains muted but small signs of an increase in inflation data are emerging. If inflation does rise, bond rates are likely to rise as well. As long as inflation remains soft, mortgage and bond rates will continue to benefit from these benign readings.
We also continue to monitor both short-term and long-term interest rates. The so-called flattening of the yield curve continues to weigh on investors’ minds, as well as hurt bank profitability. Compression of the yield curve is often a sign of a slowing economy. With mortgage rates near support levels, we continue to be cautious on interest rates and believe locking-in interest rates is the right call.